San Bernardino County Voters Can Still Dissolve Eminent Domain JPA

I am on finance TV show the Keiser Report today reporting from So-Cal’s Inland Empire about a private finance firm, Mortgage Resolution Partners, using San Bernardino County’s CEO Greg Devereaux as their guinea pig in a controversial eminent domain housing plan. A plan never attempted before that could effect future borrowing rates hurting local homeowners yet also gives them the chance to put to screws to Wall Street investors who have them in a debt death spiral. There are so many what-ifs to using eminent domain this way and miss information is being spun by both parties. After being on the ground in the county for a month here’s a few observations I think residents need to pay attention to.

First your local papers, The Sun, Press Enterprise, and even the LA Times just don’t have local reporters covering the story with the industry knowledge to understand how high-finance works so they can ask smart questions and get you the set of facts you need to make a decision. One thing’s for sure the current plan is all about those who know about how high-finance works trying to take advantage of those who don’t for a fat profit. Lefty politicians will tout its merits without reading the details of the plan and MRP has even hired a professor, Robert Hockett of Cornell, to spout out feel good expert sentences to reporters that are often inaccurate.

I get worried for readers when we see the LA Times housing reporter write, “Hockett has said that using eminent domain to seize underwater mortgages that have been securitized makes sense because often those mortgages can’t be sold at market value for legal reasons. Often, those loans must be sold at face value — a higher price — because of the contracts governing them.”

That sentence just isn’t true. The LA Times could have called over to the mortgage bond experts at SIFMA who explained, “No, he’s wrong, because the loans generally can’t be sold at all at the whim of the trustee prior to default. At whatever price.” Asset back traders confirmed mortgage bond trustees do sell loans out of the securities below face value, not often, but it happens.

A few national finance reporters and publications are trying to sort out the facts but MRP and the County just keep claiming they havn’t finalized anything – which kind of sound likes BS to me. I’d suggest reading Felix Salmon and Matt Goldstein at Reuters along with a group of high finance expert opinions Marc Hochstein has put together over at American Banker’s Bank Think to get your arms around the pros and cons of MRP’s home protection plan. On Max Keiser’s show I was referencing some really interesting points by Andrew Kahr, a banking industry veteran and opinion columnist for BankThink. Kahr spoke out against his own kind (Bankers) on why eminent domain could work but not the way MRP has planned it for San Bernardino. He even scolded mortgage investor groups for using fear of breaking contract law as the evil of all constitutional evils.

Today I also talked with Max Keiser about the County possibly violating California’s Brown Act. The notion that elected officials felt they needed to walk a grey line and break public trust to get their joint protection agency off the ground tells us a lot in this saga. With Paul Herrera, government affairs director for San Bernardino-area realtors association, now telling me that elected county board supervisors came to him all excited about the plan starting on February 15th – two months before the first public hearing in April – it’s getting clear the County felt it needed to meet in secret first to escape the wrath of deep pocket investor groups who‘d use the media to communicate all the scary pitfalls of this plan. And if reporters can’t get emails and meeting notes via FOIA request because the towns say they don’t have any, than MRP was also likely planning how they communicate (no emails) to keep their negotiations with San Bernardino County under wraps.

David Wert, spokesperson for San Bernardino County , swears to me the County doesn’t want to execute a plan that benefits one set of wealth investors over another and only helps one group of homeowners with jumbo loans who still have good credit. But local realtor groups don’t trust that. Bottom line is there is still time to reverse the formation of the Joint Protection Agency – the newly formed legal body run by Devereaux that is using county resources (lawyers and administrators) to make decisions on eminent domain. Herrera says if residents don’t want the plan they need to speak with their five elected board supervisors to get at least three to vote for dissolution of the JPA. Towns already signed on like Fontana and Ontario don’t have the money to fund a JPA on their own (lawyers are expensive) so it’s really at the feet of the County to pull this off–without a JPA they can‘t do the plan. Of course another idea is to let the JPA work through alternate plan details like including defaulting homeowners in the pool of loans MRP would buy. Even if they did that residents still better do their own research to understand on how the effects of counties using rule of law to break mortgage contracts could hurt them. They also need answers on any kind of gift tax they would have to pay if they got a principle reduction.

The reality is by using eminent domain this way what residents really have is a chance for an informed public to take control away from the banks and have a small role in redirecting their housing hell hole. And as I said on TV today if the banks had modified loan principles or at least written down these underwater loans to real market value years ago they might not be facing a possible take over by city governments that would hit their balance sheets with a big fat loss. I’d be watching if the people of San Bernardino County start showing up at public meetings to try and move the plan in a different direction through a collective vote or if a few high finance vets keep rolling along to pillage municipals.