We recognize the difficulties Chicago’s housing market faces and we understand the urge to “do something,” but we strongly object to the proposed use of eminent domain to take mortgage loans. While we appreciate that this hearing is a public forum to discuss the issues, and recognize that no decision has been made, it appears that the plan put forth by Mortgage Resolution Partners (MRP) is the leading candidate based on the recitals of the July 25th Resolution of the City Council. Regardless of which plan is ultimately chosen, eminent domain is not the right mechanism to address these problems.
We urge the Joint Committee on Finance, Housing and Real Estate to reconsider the use of eminent domain, and I will discuss three of our key concerns.
The use of eminent domain will do more harm than good. The worst harm will be felt by Chicago residents themselves, as they will find it harder or impossible to obtain credit.
If performing mortgage loans are taken from their holders, this will cause significant losses to those holders, and cause those who fund mortgage loans to act very cautiously. The losses will be borne by the pension plans, 401k plans, and individual citizens who are invested in the securities. Keep in mind that the plan will not address those borrowers who are delinquent and most at risk of foreclosure.
We need mortgage investors and lenders to come back to these fragile markets – but this plan will force both groups to avoid them.
The use of eminent domain generally, and the plan put forth by MRP specifically raise significant legal and Constitutional concerns. The issues are numerous, and we do not have time to get in to all of them here, but among other things we believe MRP’s plan neither serves a public purpose, nor provides just compensation. We have attached a legal analysis provided to us by noted Constitutional scholar Walter Dellinger of the law firm O’Melveny and Myers to the written version of this statement.
If the City of Chicago were to adopt MRP’s plan or another like it, it would position itself as a facilitator of a group of opportunistic investors’ unjust, and likely unconstitutional, efforts to extract profits from a different group of investors. This would put the City at risk of being drawn in to expensive legal disputes.
We believe it is critical that the City Council understand the full scope of issues with this proposal. What borrower segment does the plan focus on–is it of meaningful size given the risk, and is it the most in need? Is the significant profit involved appropriate, given the losses that local savers would suffer? What happens if the proposed flow from loan seizure through refinancing is delayed or changed, who bears that risk? What other opportunities are out there that have not been fully explored? We believe a closer look at the data and market realities present sometimes troubling answers to these and other questions.