The North Las Vegas City Council unanimously rejected a plan to use eminent domain to seize underwater mortgages and help homeowners downsize their mortgages and refinance at a lower rate.
The sponsor of the eminent domain plan, Mortgage Resolution Partners, estimated that 4,000 North Las Vegas residents could benefit if the city council would agree to use
But the city council rejected MRP’s plan because of its novel use of eminent domain and the fear of costly lawsuits by the trustees of the private-label securities and their Wall Street supporters.
Wells Fargo & Co. and Deutsche Bank AG have filed a lawsuit in federal court to stop the city of Richmond, Calif., from implementing the MRP eminent domain plan. Observers expect a federal judge will hear the case this fall.
Other California cities are mulling the MRP proposal but they appear to be waiting to see what happens in the Richmond case.
American Securitization Forum executive director Tom Deutsch welcomed the decision by the North Las Vegas City Council.
“We urge Richmond to follow the important course that dozens of other jurisdictions have charted in rejecting MRP’s ill-conceived notion of a free lunch for anyone willing to seize mortgage assets from pension and mutual funds which are putting retirees’ capital to work,” Deutsch said.
Due to rising house prices, “a lot of underwater borrowers are being re-equified,” Deutsch told NMN. In Las Vegas, there has been 20% year-over-year price increase.
Despite MRP’s claims about the number of homeowners it can help, Deutsch noted few borrowers who are still current on their mortgage end up in foreclosure just because they are underwater.
