Although Richmond, California, is apparently undeterred by litigation, North Las Vegas, after having been sued by a resident over its plans to use the power of eminent domain to seize underwater mortgage loans from lenders, has decided to cease and desist from from further pursuit of the hare-brained scheme.
The city council in North Las Vegas, Nevada, on Wednesday rejected a plan to use eminent domain if necessary to help refinance "underwater" mortgages, an idea the mortgage industry opposes at a time when property markets are recovering.The council voted 5-0 against the plan proposed by Mortgage Resolution Partners (MRP) for a partnership with North Las Vegas to buy the mortgages or seize them through eminent domain, a move critics said would unsettle the market for private-label mortgage-backed securities and push mortgage interest rates up.
The linked article also notes that other governmental entities like San Bernardino county and the cities of Fontana and Ontario have also bailed out of the scheme. While opposition from residents, mortgage investors, and such entities as Fannie Mae and Freddie Mac certainly played a part in the decision to drop such plans, a North Las Vegas city council member hit a nail on the head as to why this plan may be headed to the dustbin of history: rising property values.
City Councilman Wade Wagner questioned the San Francisco investor group's proposed use of eminent domain for acquiring delinquent and performing underwater loans. A mortgage is under water when its unpaid balance is more than the market value of its property, a common problem in Nevada's third-largest city.
"They want the performing mortgages they assume will default two, three, four years down the road. That's a mighty big assumption with property values climbing," Wagner told Reuters.
The article states that home prices in North Las Vegas are up 23% from the same period last year. If a rising tide lifts all boats, then a lot of underwater mortgages may be rising to to the surface. If the trend continues, taking a controversial, and perhaps expensive, action seems to make little sense.
The time for this scheme was, in my opinion, never. However, whatever your opinion on the merits of Recommended links and poststhe plan, time does not appear to be on its side. I guess the political hacks who dreamed it up to profit their "advisory" firm will have to come up with the next great idea to misuse police powers in order to line their pockets.