Two more California cities have begun to consider the controversial proposal of using eminent domain laws to seize and restructure underwater mortgages.
The Los Angeles Times reports that the municipal governments of Elk Grove and Sacramento are now considering a plan proposed by San Francisco-based Mortgage Resolution Partners, in which the localities evoke eminent domain to take over underwater residential home loans, restructure them to lower the amount owed, and then resell them to investors. Mortgage Resolution Partners is run by Steve Gluckstern, a former executive for Warren Buffett's Berkshire Hathaway Insurance Group and a major donor to President Obama's re-election campaign.
The county government for San Bernardino County and the municipal governments of Fontana and Ontario have already established a joint powers authority that would coordinate these proposed seizures. To date, however, no mortgages have been seized via eminent domain. The proposal has been politically polarizing, with Calif. Lt. Gov. Gavin Newsom openly supporting it and the Federal Housing Finance Agency and a coalition of financial services trade associations expressing grave concerns on its legality and impact on the mortgage-backed securities market.
