Posts Tagged ‘ Mortgage Resolution Partners ’

FHFA Calls Eminent Domain ‘Threat’ to GSEs, May Consider Legal Action

FHFA Calls Eminent Domain ‘Threat’ to GSEs, May Consider Legal Action

08/08/2013BY: ESTHER CHO

As local governments consider the use of eminent domain to seize underwater mortgages, they may have to deal with the Federal Housing Finance Agency (FHFA) before moving forward with the plan.

In a statement Thursday, FHFA stated it may “initiate legal challenges” to local or state actions that authorize the use of eminent domain to restructure mortgage contracts impacting Fannie Mae and Freddie Mac.

Another action the GSEs’ regulator might take is limit or stop business activity in jurisdictions that authorize the use of eminent domain to restructure mortgages.

According to the statement, the conclusion was based on the law and input received. In an analysis of the input, Alfred M. Pollard, FHFA general counsel, wrote “there is rational basis to conclude that the use of eminent domain by localities to restructure loans for borrowers that are ‘underwater’ on their mortgages presents a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.”

Pollard also stated the use of eminent domain “would run contrary to the goals set forth by Congress for the operation of conservatorships by FHFA.”

The statement follows reports that Freddie Mac might take legal action to stop Richmond, California, from using eminent domain to seize underwater mortgages. Recently, officials in the city approved adoption of the controversial approach, but the city was hit with a lawsuit Wednesday from an institutional investor group, according to a report from Reuters.

Mortgage Resolution Partners is the firm that has been actively approaching different cities to propose the use of eminent domain as a solution to address underwater mortgages. As part of the plan, MRP would provide the funds to refinance the mortgages, then take a government-approved flat fee per mortgage, according to the firm’s website.


California Town Proceeds with Emiment Domain Plan to Seize Mortgages

California Town Proceeds with Emiment Domain Plan to Seize Mortgages


Despite widespread opposition from the finance industry and the Federal Housing Finance Agency (FHFA), Richmond California, plans to move forward with a plan to use the government’s “eminent domain” privilege to seize homes with underwater mortgages on behalf of homeowners.

Richmond’s city council approved the plan in a narrow four-to-three vote early Wednesday, according to Reuters.

The city will work with Mortgage Resolution Partners, a San Francisco-based company that presents itself as a “community advisory firm working to stabilize local housing markets and economies”—to purchase 620 delinquent underwater mortgages from banks at a discount. If the banks refuse to sell, the city will use its right to eminent domain to forcibly take the properties from the banks, preventing possible foreclosures.

Wells Fargo and Deutsche Bank have already filed a lawsuit to stop the plan.

“Mortgage Resolution Partners is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit,” said John Ertman, a partner at Ropes & Gray LLP, the law firm representing the financial institutions.

“This unconstitutional application of eminent domain will be devastating for mortgage finance both public and private,” he added. “It will completely undermine the willingness for private capital to return to the mortgage markets.”

Several industry groups have already spoken out about the harm such actions would have on investors and the future of housing finance.

FHFA labeled the plan “a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.”

Some of Richmond’s city council members seem to be paying heed to these statements. According to Reuters, some council members warned the plan would invite costly lawsuits the city might not be able to afford.

Mortgage Resolution Partners has attempted to work with several other cities to invoke eminent domain in the same manner. However, Richmond, California, is the first city to approve the plan.


Commentary: Eminent Digression

Commentary: Eminent Digression


In a newly published paper posted on the New York Federal Reserve website, Robert Hockett, a Cornell University professor of financial and monetary law, proposes using government’s eminent domain authority as a solution to underwater mortgage debt.

Hockett suggested governments could buy and restructure underwater mortgages and reduce the principal lowering the amount owed by borrowers, reducing the default risk. The new mortgages would be packaged and sold into the secondary market.

In reviewing Hockett’s suggestion, the Wall Street Journal concentrated not on the idea itself, but noted Hockett’s proposal was quite similar to one offered by Mortgage Resolution Partners (MRP), a San Francisco-based investment firm which, the Journal said, “could be a big winner in such a scheme as the repackager of the seized mortgages into new securities in return for a fee.”

Hockett, according to the Journal, “turns out to have been on the payroll of none other than Mortgage Resolution Partners.” Being “on the payroll,” to use the Journal’s own phrasing, “turns out” to have been a “one-time honorarium,” the Journal said quoting MRP Chairman Steven Gluckstern.

Nonetheless, the Journal uses Hockett’s past affiliation with MRP to discredit the suggestion without undertaking anything close to an objective, critical review.

[The New York Fed didn’t distinguish itself in this dust-up by failing, initially, to disclose Hockett’s MRP affiliation when it first published the paper. Hockett’s brief bio at the end of the paper was modified after the Journal inquired, noting, “In 2012, he received a fee from the firm Mortgage Resolution Partners to provide legal analysis of questions raised by his eminent domain proposal in the state of California. All of his current work on the foreclosure crisis and eminent domain plan, for public and private entities alike, is done gratis.” The name of the company does not otherwise appear in the paper.]

Hockett’s paper describes in detail how his plan would work, though it is fairly straightforward. Federal plans to address and resolve underwater mortgages, he wrote, have not worked.

State and local governments, he then suggests are “the collective agents best able to address the structural problems that arise with the pooling and servicing agreements,” which are seen as impediments to working out troubled loans.

State and local governments, he said in his paper, “face the brunt of mass foreclosure and its consequences more directly than the federal government” and “have constitutional authority to address” them through eminent domain. The eminent domain powers, he argued, exist precisely to deal with urgent circumstances which have otherwise defied traditional solution.

Generally we think of eminent domain as the power of a government to take and pay for privately owned property for a public purpose. “Preventing more foreclosures, blighted properties, revenue base losses, and city service cutbacks is recognized by courts as the most compelling of public purposes justifying use of the eminent domain authority,” Hockett wrote. Investors in the mortgages secured by those properties would be paid fair value—that is, what the properties are worth.

And, as he proposes it, taxpayer dollars would not be involved. The seized properties would go back to current owners with mortgages reflecting their current value. Local governments, he suggested, could “finance the purchases with monies lent by federal agencies in the manner of the Treasury’s Troubled Asset Relief and Public-Private Investment Programs, and the Federal Reserve Bank of New York’s MBS stabilization programs, all of which ultimately have turned profits.” [Note to the Journal, Hockett was described in the paper’s end note as a “former visiting scholar at the Federal Reserve Bank of New York.”]

Alternatively, he said the money could be raised from private investors through any number of transactions. Those investors could include the original bondholders.

Hockett provided a legal argument for his plan and said it is not uncommon to use eminent domain “for more than compulsory land purchases for roads and bridges.”

Governmental authorities, he wrote, “compulsorily purchase,” translation: eminent domain, “property at fair value for public use all the time…and they do so with all manner of property-tangible and intangible, contractual and realty-related alike.” Governments, he said have used eminent domain to purchase, among other things, “insurance policies, corporate equities, other contract rights, businesses as going concerns, and even sports franchises.”

In any transaction, there are winners and losers. There may be a lot of good reasons to discard Hockett’s suggestion, but his past relationships are not among them. His idea deserves a fair hearing, not a digression.

Hear Mark Lieberman on P.O.T.U.S. (Sirius-XM 124) Friday at 6:20 am eastern time.

‘Life Rafts’ Keep Underwater Mortgages in San Bernardino Afloat: Fed

‘Life Rafts’ Keep Underwater Mortgages in San Bernardino Afloat: Fed

02/14/2013 BY: ESTHER CHO

In a recent blog post from the Federal Reserve Bank of New York, three Fed researchers shared their findings on mortgages that would have been targeted by a controversial use of eminent domain proposed in San Bernardino County.

Although mortgages in San Bernardino County are plagued with negative equity, the researchers still found good news to keep in mind when considering eminent domain to address underwater mortgages.

Mortgage Resolution Partners first proposed the controversial use of eminent domain to county officials, but the idea was recently rejected by the Joint Powers Authority (JPA), which was created last year to consider proposals addressing the issue of negative equity in the area.

The proposed use of eminent domain involved seizing underwater mortgages at fair market value. The mortgages would then be refinanced with new terms based on the property’s current value.

For their analysis, the authors—Andreas Fuster, Caitlin Gorback, and Paul Willen—used loan data from CoreLogic containing loan-level information on nearly all privately issued mortgage securitizations.

In San Bernardino County, the researchers located about 456,000 first-lien mortgages, of which about 280,000 would be considered subprime loans, 142,000 Alt-A loans, and 34,00 prime jumbo loans. The overwhelming majority—70 percent—were adjustable-rate mortgages (ARMs).

As of August 2012, about 68,000 (15 percent) were still open, 275,000 (60 percent) were prepaid voluntarily, and 112,000 (25 percent) were foreclosed on or are currently in foreclosure proceedings.

Out of the loans that were still open, 51,500 (76 percent) were current, 5,000 (7 percent) were thirty days delinquent (an early-stage delinquency often reversed in the subsequent month), and 11,500 (17 percent) were sixty or more days delinquent.

The researchers just focused on the loans that were still open and found only 11 percent of the open loans were not underwater. Despite the depressing state of the loans, the researchers found the first lien payments on the mortgages have fallen “dramatically,” with about one-third of ARM borrowers seeing a 40 percent reduction compared to five years ago.

In addition to the decreased payments, prices in the area have been on the rise since February 2012 after falling by more than half from peak to trough, according to the researchers. In eight months through October, prices have risen 9 percent or at an annualized growth rate of more than 13 percent, the blog post noted.

“Overall, the situation in San Bernardino County appears to be improving. While a large fraction of borrowers remain dramatically underwater, a number of life rafts in the form of low interest rates, loan modifications, and recently increasing house prices have kept many from drowning,” the authors wrote.

The authors concluded by advising that such facts “should be important considerations in the cost-benefit analysis of the eminent-domain idea or related proposals.”

San Bernardino County Rejects Eminent Domain Proposal

San Bernardino County Rejects Eminent Domain Proposal

01/28/2013 BY: ESTHER CHO

After much debate and consideration, an idea that had been brewing in San Bernardino County to address negative equity through the use of eminent domain was rejected Thursday by the Joint Powers Authority (JPA).

The proposed use of eminent domain was first pitched to the county by Mortgage Resolution Partners and involved seizing mortgages from underwater borrowers at fair market value. The mortgages would then be refinanced with new terms reflecting the property’s current value. San Bernardino County and two of its cities, Ontario and Fontana, formed a JPA last year to consider the proposal.

According to a release from San Bernardino County, the board decided against proposals that would consider the use of eminent domain, with board Chairman Greg Devereaux pointing out that many experts have warned of the impact eminent domain could have on the already weak local housing market.

“It’s wrong to impose that risk on the community without support from the community, and that level of support has not materialized,” said Devereaux. “We don’t want to do more harm than good in what we choose to do.”

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