Chicago is the latest city to join a growing list of cities and counties across the country that are considering using â€œeminent domainâ€ in order to seize underwater mortgages.
The controversial idea first surfaced in San Bernardino County, Calif. A west coast capital firm, Mortgage Resolution Partners, is trying to get more counties and cities across the country signed up to the idea, which they argue is a way to decrease the number of foreclosures and prevent home values from falling any further.
If cities use â€œeminent domainâ€ in this sense, they would be able to seize mortgages that are in negative equity and then use investor money to reduce the mortgage principal for the home owner. Theyâ€™d also be able to help refinance the home ownerâ€™s loan into a government-backed loan, according to Mortgage Resolution Partnersâ€™ proposal.
Chicago will consider an eminent domain measure at a hearing this week, but city council members have already said that the idea has cleared legal standards. In Chicagoâ€™s Cook County area, more than 44 percent of homes are underwaterâ€”meaning home owners owe more on their mortgage than their home is currently worth.
"In the coming weeks and months we expect more municipalities to announce their intent to explore the use of eminent domain to seize underwater mortgages," Isaac Boltansky, a policy analyst for Compass Point, told HousingWire.
HousingWire cites critics who argue that such a program would cause mortgage bonds backed by jumbo loans to see losses increase more than 30 percent. Some in the real estate community also have spoken out against eminent domain proposals to take over mortgages in recent weeks, questioning the legality and suggesting that it violates property rights.
Source: â€œChicago Considers Eminent Domain to Seize Underwater Mortgages,â€ HousingWire (July 27, 2012)