An agency set up by San Bernardino County officials will determine Thursday if the local government will go ahead with a controversial plan to seize underwater mortgages through eminent domain.
The proposal first surfaced in the California county earlier this summer. The government there would use private capital raised by Mortgage Resolution Partners to acquire current but underwater home loans, write down the principal and refinance them into new Federal Housing Administration mortgages.
A joint powers authority will hold a hearing Thursday and will vote on whether they will direct staff to draft a request for proposals for the plan, said David Wert, the county’s pubic information officer.
If the agency decides to move ahead, it will issue the RFP at its next meeting, which has yet to be scheduled.
Other cities also are considering the controversial proposal. Bond investors warned the Chicago City Council at a meeting Tuesday if it goes forward with an eminent domain plan the city would face an expensive legal battle and evaporating mortgage credit in the area.
But the negative equity situation in San Bernardino is much worse, which may give local officials more urgency to adopt the plan.
More than 60% of Inland Empire homeowners living in the Riverside and San Bernardino areas in California owed more on their loan than their home was worth in the first quarter, according to a meeting document provided to HousingWire.
That’s more than 2.5 times the national rate.
Home values in the area dropped more than 55% from the peak of the housing market, according to Zillow (Z) estimates.
“As the national economy has begun to slowly recover, the Inland Empire will continue to struggle unless additional steps to deal with the long term impacts of the mortgage crisis are taken,” according to the document.