Eminent Domain: Extreme Plan Mulled to Stem Foreclosure Crisis

San Bernadino County officials in California are considering the use of “eminent domain” to help homeowners get out of underwater mortgages in a last-resort, drastic step toward easing the foreclosure crisis.
But the move is touching off a firestorm of criticism from the mortgage-finance industry, with detractors saying it could dramatically push up interest rates in the already-hard hit communities of the California county.
Governments use eminent domain primarily to acquire private land for public projects, including public roads and utility structures. Property owners are normally compensated before the land is seized.
Gregory Devereaux, the chief executive of San Bernardino County and its 2 million residents, is pushing local leaders to consider exercising eminent domain in this way: local government seizes a private property and pays the investors that owns the property with a fraction of what they are owed.
The money to pay off the investors would come from money borrowed from the San Francisco-based venture fund Mortgage Resolution Partners.
Homeowners could then refinance with a federal-guaranteed loan at currently low interest rates, based on what their home is really worth, not the amount they owe.
A public hearing on the eminent domain proposal on Aug. 16 was attended by lobbyists from the mortgage-financing industry, who warned that communities introducing such a drastic plan would face higher borrowing costs and a wave of lawsuits.
The proposal is a response to growing frustrations with the Obama administration, which has been seen by homeowner advocates as dropping the ball in providing a broader plan to help underwater borrowers avoid foreclosures.
“We’ve seen a bailout of the banking industry, but no bailout for homeowners,” said Arie Giddens, a San Bernardino resident whose home is worth less than half the $300,000 she paid for it in 2005, according to Zillow.
Read the Huffington Post article for more on the proposal.

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