While the likes of PIMCO, BlackRock, DoubleLine, and Wells Fargo are major RMBS holders, their reasons for seeking a court order to block Richmond, California's Eminent Domain seizure of mortgages are applicable (and should be worrisome) for all US citizens. As we have noted previously [10], the asset managers warn that the Mortgage Resolution Partners actions will "seriously harm average Americans, including pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit." While the Richmond Mayor stands by her decision, the investors argue that this plan is unconstitutional and discriminatory - sounds just about right in our new normal.
Of course, with President Obama's new 'better bargain for the middle class' and his partnership with Zillow, nothing would surprise us that this becomes the new normal wealth transfer mechanism... but once again few will have considered the unintended consequences...
Via Bloomberg, [11]
Pacific Investment Management Co. and BlackRock Inc. (BLK) are among bond investors seeking a court order blocking Richmond, California, and Mortgage Resolution Partners LLC from seizing mortgages through eminent domain, saying the initiative would hurt savers and retirees.
The city’s plan is unconstitutional,
...
“Mortgage Resolution Partners is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit,”
...
The program would harm owners of mortgage bonds by paying them too little for loans, as well as damage communities by drying up lending, at least 18 trade groups representing asset managers, bankers, real-estate firms and builders have said in past statements. Costs to investors could exceed $200 million just on loans in Richmond, according to the complaint.
...
At least a dozen cities still dealing with the fallout of worst slump in home prices since the Great Depression are studying the eminent domain idea.
...
Under the program that Mortgage Resolution Partners has pitched, a private investment fund would buy loans from bond trusts for amounts less than current property values. The prices would be based on financial models or comparable trades and sanctioned by courts.
The mortgages then would be reduced and homeowners refinanced into new debt insured by the Federal Housing Administration.
Richmond’s plan would harm interstate commerce because lenders will be less willing to underwrite mortgages and investor confidence in the market for mortgage-backed securities and “by extension, the national housing market and national economy” would be undermined, according to yesterday’s complaint.
The plan is also discriminatory because it targets only certain loans, the trustees alleged. It violates California and U.S. constitutional protections against impairing private contracts and the taking of private property for public use without just compensation, according to the complaint.
...
Eminent domain, the right of governments to take private property for the public good while providing fair compensation to the owner, has typically been used to seize real estate, such as to build highways or parks.
...
About 25 percent of U.S. homes with a mortgage, or 13 million properties, were under water in the first quarter of this year, according to Zillow Inc., a real-estate information firm.