BLOG VIEW: One of the most peculiar controversies brewing today is the scheme by a few local governments in California to rewrite the concept of eminent domain as a means of propping up their local housing markets. Under this plan, underwater mortgages would be seized via an invocation of eminent domain law, restructured to meet current valuations and resold to investors with ties to a San Francisco group called Mortgage Resolution Partners.
Oh, there are a few caveats. The homeowner has to be current with his or her mortgage payments, and the mortgage cannot be owned or guaranteed by the government-sponsored enterprises or the Federal Housing Administration (FHA). And Mortgage Resolution Partners, which cooked up this idea, gets a $4,500 fee on each successful transaction.
So what does the Obama administration have to say about using eminent domain to seize California's underwater mortgages? Well, it appears that they'd rather say absolutely nothing.
The Wall Street Journal made an attempt earlier this month to get feedback from the administration, but an unnamed ‘White House official’ told the newspaper that although the president has ‘concerns with this approach,’ he nonetheless views it as a ‘local issue’ and, thus, will not make an on-the-record comment.
Actually, this is a local issue – for the White House. Phil Angelides, former chairman of Obama's Financial Crisis Inquiry Commission, used to be the executive chairman of Mortgage Resolution Partners. Steve Gluckstern, a former general manager of reinsurance operations at Warren Buffett's Berkshire Hathaway Insurance Group and a deep-pocketed contributor to President Obama's political campaigns, is currently running the operation. Also on the executive team is B.J. Greenspan, a former honcho at the George Soros-funded Institute of New Economic Thinking. If these guys were any closer to the White House, they would be nibbling carrots from Michelle Obama's vegetable garden.
Of course, housing has not exactly been one of the Obama administration's shining successes. Even the president openly admitted last year that he needed to go ‘back to the drawing board’ in view of the dismal results generated by federal loan modification programs. Not surprisingly, the White House would rather discuss Mitt Romney's tax returns than its record on housing.
And what is Romney's opinion of this issue? So far, he has not acknowledged this issue. It appears that the former Massachusetts governor and occasional California resident – he has a $12 million mansion in La Jolla, presumably without an underwater mortgage – is either unaware of the eminent domain controversy or is still religiously adhering to his evasive campaign strategy of offering absolutely no specific proposals on long-festering housing-related issues. In fact, I believe the last time Romney publicly acknowledged housing was when a TV reporter sought confirmation on whether one of his homes had an elevator solely for his automobile fleet. (Yes, it does!)
While our political leaders have no desire to address this issue, our industry's leaders are not shy about targeting the eminent domain nonsense. David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA) and the Obama administration's former FHA commissioner, used an op-ed column in a California newspaper to brand the eminent domain strategy as ‘radical’ while warning that it could actually wreck both the local housing markets and the wider economy.
The MBA, along with a broad coalition of housing and financial services trade associations, has openly petitioned the local governments in California to jettison the eminent domain plan, arguing that the ‘contemplated use of eminent domain raises very serious legal and constitutional issues.’
The financial services industry should be satisfied that its leaders are speaking out strongly against this supremely atrocious idea. Pity that our political leadership lacks the courage and fortitude to do the same thing.
– Phil Hall, editor, MortgageOrb
(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)
