A coalition of industry trade organizations led by the Securities Industry and Financial Markets Association (SIFMA) has submitted a letter to the city governments of Fontana, Calif., and Ontario, Calif., and the county government of San Bernardino, Calif., expressing ‘strong objection’ to their plans to use eminent-domain policy to seize residential properties with underwater mortgages.
‘We believe that the contemplated use of eminent domain raises very serious legal and constitutional issues,’ the trade groups wrote in their letter. ‘It would also be immensely destructive to U.S. mortgage markets by undermining the sanctity of the contractual relationship between a borrower and creditor, and similarly undermining existing securitization transactions. Such an action would likely significantly reduce access to credit for mortgage borrowers in the San Bernardino area and other areas that undertake similar actions.’
The trade groups also warned that the use of eminent domain to seize properties with underwater mortgages would disrupt the securitization markets.
‘If eminent domain were used to seize loans, investors in these loans through mortgage-backed securities or their investment portfolio would suffer immediate losses and likely be reluctant to provide future funding to borrowers in these areas,’ the trade groups continued. ‘It is essential to remember that investors in mortgage-backed securities channel the retirement and other savings of everyday citizens through their investment funds. This program may cause loans to be excluded from securitizations, and some portfolio lenders could withdraw from these markets. In other words, this program could actually serve to further depress housing values in the county by restricting the flow of credit to home buyers.’
SIFMA was joined in its letter by organizations including the American Bankers Association, the American Securitization Forum, the Association of Mortgage Investors, the California Mortgage Bankers Association, the the Financial Services Roundtable and the Mortgage Bankers Association.