Officials in San Bernardino County, Calif., believe they have figured out a clever way to solve the county’s, and possibly the nation’s, housing problems.
Detailed by a Cornell University professor, and pitched by influential San Francisco investors who stand to make a fortune from it, this new idea is based on one of the oldest concepts: the taking of other people’s property.
County officials, joined by the cities of Ontario and Fontana, are considering using an expansive interpretation of eminent domain – typically used to acquire real property to build public works – to seize the mortgages, not the real property, of those homeowners who owe more than their homes are worth.
The funds would be provided by private investors, who would pay the holders of the mortgages “fair market value” and then write new ones for the homeowners based on much lower principal amounts, reflecting the new depressed values of the homes. The firm behind this complex plan, Mortgage Resolution Partners, may be in the running to acquire vast numbers of mortgages at discounted rates. Local officials would have, theoretically, solved their local housing problems. Homeowners would stay in their homes and have much lower mortgages.
The “fair market value” probably wouldn’t be based on an expected sales price of the home, but on a wholesale value that would be at least 20 percent lower than that, said Mark Dowling, the CEO of the Inland Valleys Association of Realtors.
This complex plan should have been nothing more than a thought experiment in a college economics class except that Mortgage Resolution Partners took the idea to the San Bernardino County Board of Supervisors, which last month unanimously voted to create a “Joint-Powers Authority” to pursue the plan.
Officials say the authority was formed only to explore this idea, but as the Inland Valleys Association of Realtors pointed out in a letter to the county board of supervisors: “Currently, the JPA agreement does not require partner members to approve any JPA programs. Instead, the board is only required to seek approval for its budget from the participating local governments if those governments are asked to contribute funds.”