California Eminent Domain Refinancing Controversy Update

San Bernardino County has been in the spotlight recently as a controversial proposal to seize underwater homes and help the owners refinance into lower, more affordable mortgages has become a national issue. We’ve reported on this several times in recent weeks; the latest news is that U.S. Congressman John Campbell, a Republican from Irvine CA, has introduced a bill “aimed at blocking local governments across the nation from using eminent domain to seize underwater mortgages” according to press clippings on Campbell’s official “dot-gov” site.

The Defending American Taxpayers from Abusive Government Takings Act, officially known as H.R. 6397, “would prohibit the nation's top four mortgage lenders - Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veteran's Administration - from purchasing or guaranteeing loans in counties or cities that use eminent domain to seize underwater mortgages” according to Campbell’s site.

He was quoted in a report by Mercury News, saying, "Those four entities make or guarantee 97 percent of all home loans in the U.S. today," Campbell said. "If any city or county does this, no one in that city or county would be able to get a loan in the future. It would eliminate the ability for most people to get loans."

For those new to this issue, a San Francisco investment firm called Mortgage Resolution Partners introduced a proposal to use eminent domain allowing the seizure of “underwater” mortgages held “in private-label mortgage backed securities, which are held in trust but bundled and sold in bulk to private investors” in the words of the Mercury News report. That proposal has been hotly debated ever since. Do state, county, or municipal governments have the right to take such steps? That is one focus of the debate.

San Bernardino County is one of the communities weighing this proposal. Other cities with troubled or struggling housing markets, including Chicago, Illinois, are carefully monitoring this idea and the results of any action taken.

In response to the bill introduced by Congressman Campbell, Mortgage Resolution Partners issued a statement, saying,  "We are surprised that a member of Congress who has regularly obstructed would-be federal responses to the ongoing mortgage crisis that continues to block national economic recovery now would attempt to interfere at the federal level with state and local efforts to solve the problem".

We will continue to provide updates on this story as they become available.

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