Mortgage firm pushes for eminent domain usage to solve housing crisis

A mortgage firm wants to use eminent domain to restructure mortgages that borrowers owe more money on their homes than they are worth.

As reported in a Reuters article, a San Francisco-based mortgage firm is pushing local politicians in California and other states hit hardest by the housing crisis to use eminent domain to restructure mortgages that borrowers owe more money on their homes than they are actually worth.

The controversial approach is backed by prominent West Coast financiers and was recently presented as an option to modify mortgages on a large scale to solve the housing crisis. Eminent domain is when a local government obtains a court order to take over a property it deems either blighted or needed for the public good. In the past it has been used to clear urban slums or seize land for highway construction.

Mortgage Resolution Partners wants to work with local governments to find investors that will provide the tens of billions of dollars to finance the condemnation process – ensuring that taxpayers do not need to fund all of the distressed mortgages. According to Reuters, a local government entity takes title to the loans and pays the original mortgage owner the fair value with the money provided by institutional investors.

Recently, many institutional investors are trying to raise money in order to acquire foreclosed single-family homes, with the intention of renting them out until housing prices recover. Thus, Mortgage Resolution Partners' plan is a fresh and welcome idea to some, as homeowners could stay in their residence and work with the firm to restructure their loans. 

"The private sector provides all the financing and all the risk with this program," said Steven Gluckstern, the firm's chairman. "We have watched state (and) national government try to fix this and it hasn't worked."

While some recovery has been reported in the housing market, there is currently not an end in sight for the crisis. As such, lenders should invest in loan management software along with an amortization calculator to keep track of the amount of borrowers and ensure that all payments are made in a timely fashion.