Eminent domain plan could face road block

The debate continues to rage over whether or not using eminent domain to seize underwater houses is the best way to help cope with the housing crisis.

This blog previously mentioned how some local governments might soon begin using eminent domain to seize underwater mortgages. However, according to a recent HousingWire article, threats of withdrawn mortgage credit could put a hindrance on any such plans.

Last week, a Source Media webinar was held for bond investors, where parties on both sides of the issue were given a chance to plead their case.

John Vlahoplus, chief strategy officer and founder of Mortgage Resolution Partners – the company leading the original eminent domain pitch in California – said in the webinar that concerns over investors receiving below market value of their loans are overblown.

Additionally, Richard Friedman, managing attorney for Neal & Leroy, said that while eminent domain is never popular, the Supreme Court rarely finds it to be unconstitutional.

Tim Cameron, managing director at the Securities Industry and Financial Markets Association (SIFMA), called the program "unconstitutional" and that it was simply a bad policy. He added that the Federal Housing Finance Agency (FHFA) threatened to keep the government sponsored enterprises (GSEs) from financing loans in an area that enacted such a program.

"Nobody can safely quantify the unpredictable and hostile act of taking mortgages through eminent domain," Cameron said to the news source. "If you want to kill an economy, start by aggregating contracts and start by introducing eminent domain."

San Bernardino County – where the program was originally pitched – has actually shown signs of improvement without eminent domain being used, according to analytics firm Clear Capital.

As the economy is still attempting to recover, along with the housing market, lenders should ensure that they have quality loan management software in place. Along with an amortization calculator, this will allow borrowers to rest assured that a repayment plan will be created that is suited to their financial needs.