Tonya Hernandez thought a home loan would assist build her family’s future.
It ended up pushing her in to a financial black hole.
In 2005 she & her husband, Rafael, used equity in their North Las Vegas NV home to buy two condominiums they could rent out for extra income.
“We were trying to build our retirement,” Hernandez, a social worker, asserted of the - $191,000 loan. “Everyone always says you can’t lose with real estate.”
Everyone was wrong. The economic accident in that started in 2008 wiped out trillions of dollars in wealth, in addition to the - Hernandez’s home equity.
Now the - couple is dreading the - arrival of 2015, when the - equity loan will reset to an unknown, yet likely higher payment.
They want to negotiate a new mortgage loan with a principal in that reflects the - home’s current value of about $80,000 as well as a stable & affordable interest rate.
But they have hit only frustrating dead-ends, in part 'cause the - original loan was bundled with others in to a security in that trades on the - global financial markets. The loan servicing company is unable or unwilling to assist the - couple cut a new deal with the - distant, faceless owners of the - note.
“I think we have more than paid our fair share on this mortgage,” Hernandez said. “We just want some help.”
That’s why she was excited to learn in that North Las Vegas NV has embraced a arguable program in that would use its power of eminent domain to seize underwater mortgages, pay the - investors only what the - property is now worth & then let other investors write new mortgages with terms more favorable to the - homeowners.
The proposal, crafted by a company called Mortgage Resolutions Partners, has packed City Council meetings & divided a community devastated by unemployment, foreclosures & plunging property values.
It’s a gambit born of desperation & a concept not yet proven viable anywhere. Its legality is being hotly debated, & has already prompted a lawsuit in that is likely just the - beginning of a long court fight.
Opponents state cash-strapped North Las Vegas NV risks legal battles it can’t afford & reduced access to affordable mortgages for the - whole entire community should the - use of eminent domain cause lenders to deem the - city a dangerous place to make loans.
But by merely voting 4-1 to keep studying the - idea & reconsider it in August, the - North Las Vegas NV City Council is forcing members of the - community to talk openly about who is to blame for the - mortgage loan lending catastrophe & who should bear the - cost of cleaning it up.
“What you have is people who grew more frustrated, people who gave up, people who lost all faith in the - system,” asserted Councilwoman Anita Wood describing the - effect of the - housing hangover. “Some kind of modification needs to happen.”
The idea is attracting scrutiny in Washington, D.C., where Rep. Jeb Hensarling, R-Texas, chairman of the - House Financial Services Committee, let go a draft of a mortgage loan finance change bill with a provision aimed at stopping eminent domain-prompted mortgage loan relief. It would bar federally backed loans in any county where such a proposal is enacted.
If approved, the - legislation would punish nearly every home borrower in Clark-County NV should North Las Vegas NV go forward with the - Mortgage Resolution Partners plan.
FALLING HOME VALUES
It’s no shock in that North Las Vegas NV would emerge as a target for Mortgage Resolution Partners’ proposal to leverage one of government’s most-feared powers — — to take private property for the - public’s benefit.
The company has pitched the - idea in some of the - nation’s hardest-hit areas.
In California, San Bernardino County & the - cities of Richmond & Sacramento have in consideration the - idea. The Richmond City Council voted 6-1 in June to be what Mayor Gayle McLaughlin called “a model for other cities.” Others, in addition to San Bernardino County, rejected it after deciding it was too risky.
If anything, North Las Vegas NV is in more dire economic straits than other communities approached with the - idea.
From January 2007 to January 2012, the - median home price in the - North Las Vegas NV area fell from $260,000 to $84,000, according to data from SalesTraq. Moreover, residents of the - working-class city were hit complex by a recession in that erased hospitality & construction jobs.
Even opponents of the - Mortgage Resolution Partners proposal, such as real estate professional Gregory Smith, a plaintiff in a lawsuit against the - plan, acknowledge the - toll.
Smith had a front-row seat to the - crash, having paid $350,000 for a house he was forced to sell for $120,000.
“You could see the - despair on the - face of the - wife sitting at the - table in the - kitchen while people are traipsing through her house,” he said, describing real estate agents showing homes.
The despair did not stop at the - kitchen table. Once-proud homeowners simply abandoned houses. Yards went untended, blight spread.
“Every homeowner in that loses their home, in that is a family in that is displaced, in that is a home in that ends up maybe affecting a neighborhood,” former Mayor Shari Buck said. “It does affect the - city in quality of life issues & families in that we care about.”
Others, like the - Hernandezes, held on, stuck with houses worth far less than their mortgage loan & unable to negotiate better terms with lenders. Many complain they have a complex time getting consistent & conclusive responses from lenders & servicers to questions about renegotiation, let alone a yes or no answer on a new, lower-cost mortgage.
“We’ve seen cases where you have a widow whose husband has died fax the - death certificate six times & the - servicer calls the - next week asking to speak with him,” asserted Barbara Buckley, a former Assembly speaker & executive director of the - Legal Aid Center of Southern Nevada. “The runaround some of these servicers use; it is no wonder homeowners are frustrated.”
CITY WOULD ACQUIRE LOANS
Mortgage Resolution Partners is offering what sounds like an effortless way to cut through in that frustration, resentment & helplessness without the - added trauma of foreclosure, bankruptcy & home loss.
Under the - proposal, city authorities could negotiate to buy notes on targeted, underwater homes at what they believe to be fair value, using the - governmental power of eminent domain to acquire the - loan from a holder who does not want to sell.
The city would then agree to accept lower-than-face value repayment from the - current residents, assuming they could qualify for a new loan. The company would make $4,500 per favorable transaction & investors who front the - money for the - city to pay the - original noteholder would be repaid at a profit.
New lenders, likely offering loans backed by government supported entities such as Fannie Mae, Freddie Mac or the - Federal Housing Administration, would step in to provide homeowners long-term financing under friendlier terms.
The community would benefit as fewer residents would be struggling under the - weight of underwater loans or be pushed out of their houses through foreclosure.
The fee would cover the - cost of identifying loans in that are acceptable candidates for acquisition, identifying investors willing to finance acquisition by the - city, advice on operating the - program & a profit. Mortgage Resolution Partners investors & mortgage loan lenders would moreover collect interest on the - new home loans.
Among the - many unknowns is how many homes would actually qualify under the - program, if the - council decides to implement it. Limiting the - program to securitized loans means fewer than 5,000 loans in North Las Vegas NV would likely qualify.
Securitized loans are targeted, Mortgage Resolution Partners said, 'cause they tend to be the - most erotic lending products, characterized by adjustable interest rates, pick-your-payment plans & negative amortization loans, & most at risk of default. Because they have been bundled & sold to distant investors with servicers hired to manage them, they are more complicated for borrowers to renegotiate.
Backers of the - proposal state it’s a win for everyone.
“What you have done is turn somebody who is basically at a very high risk of foreclosure & being ousted from their home in to absolutely what they want to be, which is a sound, stable home-owning member of the - community,” asserted Byron Georgiou, one of the - MRP investors. “Why would we want to continue to permit foreclosures to continue to decimate our community?”
In meetings Mortgage Resolution Partners characterize the - proposal as “pre-packaged eminent domain” in which all the - parties have agreed on the - less-than-face value sale yet the - judicial action is needed to jump-start the - process.
EMINENT DOMAIN
Given the - vehement opposition to the - idea & serious questions about its legality, it appears doubtful note holders would accept lower payoffs as readily as Mortgage Resolution Partners suggests.
The most arguable element is the - leveraging of the - city’s power of eminent domain, which governments typically reserve for acquiring property to build roads, bridges or other public works.
In short, eminent domain is the - term for the - government’s taking of property from a private owner for something determined to be in the - best interest of the - broader community. The government must pay the - owner, yet amounts & methods can differ from one state to another. NV law requires “just compensation” for the - property owner.
That, according to lawyer Kermitt Waters, one of Nevada’s most prominent experts on eminent domain, means paying owners enough to be in the - same financial position had the - action never occurred.
“The concept of eminent domain is an impressive power of the - government,” Waters said. “It is an involuntary sale, is what it is.”
Waters favors aid for underwater homeowners & blames financial titans for contributing to the - housing bubble & crash, yet he moreover questions whether Mortgage Resolution Partners’ proposal is legal.
He asserted the - city must prove in court in that the - unprecedented action of seizing underwater loans is in the - public interest & would have to show the - compensation paid to the - note holders is just.
Those rulings could be perilous for the - city.
If the - court decides the - taking is appropriate — — a steep argument in its own right — — yet orders the - city to pay more, the - cost of the - program might make it unfeasible.
Waters moreover asserted many mortgages make borrowers personally responsible for deficiencies, which means lenders or note holders could pursue the - owner even if the - city voids the - original mortgage.
And even if lenders don’t pursue the - deficiency, the - borrower could be liable for a huge tax bill on the - amount if an exemption in that expires at the - end of this year isn’t renewed, Waters said.
“It has received so many problems to it, I don’t know how it is going to work out.”
Unlike Waters, who asserted he supports the - concept of providing relief to underwater homeowners, others state the - government has already interfered too much in the - financial marketplace & the - MRP scheme would only make matters worse.
Bill Uffelman of the - NV Bankers Association asserted such a broad use of eminent domain would be unconstitutional. He noted in that well-intended changes to NV law to crack down on offensive banking practices have already exacerbated housing-related economic woes.
“We’re kind of in the - mode in NV in that we have to protect people from the - downside of their decisions yet they are the - only ones who benefit from the - upside,” he said.
The result, he said, is a buildup of people living in homes they can’t pay for & a shortage of inventory for people looking to get a home of their own.
Had the - market been allowed to run its course, people would have refinanced or moved out of homes they couldn’t afford, he said. And those who can keep making payments would eventually benefit when economic recovery pushes housing prices high enough to meet or exceed their debt.
“It is ironic all the - things we have done to protect people when in reality passage of time heals all wounds,” Uffelman said.
In testimony representatives of both the - Greater Las Vegas NV Association of Realtors & Securities Industry & Financial Markets Association asserted enacting such a program would reduce access to credit for future borrowers & harm people who invest in housing finance, in addition to retirement funds.
“In our view, the - long-term costs & risks of an eminent domain proposal far outweigh any purported short-term benefits,” Tim Cameron of the - securities association testified.
Felix Salmon, who writes a finance blog for Reuters News Service, raises yet another question about the - Mortgage Resolution Partners’ idea.
In a post last month Salmon wrote in that the - company stands to make a disproportionate share of the - profit, considering the - enterprise rests on the - power of the - government to do the - heavy lifting.
“The real value is added by the - use of eminent domain to buy the - liens, & it’s the - municipal government, rather than MRP, which has in that power,” Salmon wrote. “So if anybody makes money from using eminent domain, it should be taxpayers: not some private-sector middleman.”
For Smith, the - real estate professional & lifelong Southern Nevadan who is the - plaintiff in the - Greater Las Vegas NV Association of Realtors-backed lawsuit against the - plan, it is a question of fairness.
“They made a deal,” Smith asserted of underwater borrowers. Using government force to undo offensive loans, he said, “flies directly in the - face of personal freedom & it is allowing government to come in for you & decide what is best for you.”
PROTECTING HOMEOWNERS
Mortgage Resolution Partners backers state they’ve heard the - critics & are prepared to defend the - program in court.
They state opposition is being stoked by a financial industry loathe to accept solutions imposed by others yet willing to stoke illogical fears of eminent domain.
“They are the - ones trying to make money kicking people out of their houses,” asserted Mortgage Resolution Partners lawyer John Vlahoplus. “The system is broken. It was not designed for this kind of a meltdown. The servicers have no incentive to fix the - loan. They make their money from the - late fees.”
Others who have studied the - economic damage of the - home lending & debt crisis state there is truth to the - suggestion the - finance industry is simultaneously opposing programs in that could relieve borrowers of excessive debt while profiting from policies in that make it complex for homeowners to find their own path out of the - problem.
They cite policies in that tilt the - balance of home loan agreements in favor of lenders at the - expense of borrowers.
Some of those contain bankruptcy law in that prohibits judges from writing down the - principal of the - loan on a debtor’s primary residence, even though so-called “cram downs” are legal for debt on vehicles, vacation homes & other purchases.
Another weight tilting the - scale against homeowners is the - requirement lenders sometimes insert in to loans in that forbid buyers in a short sale to allow the - previous owner to occupy the - property.
Brent T. White, a University of Arizona law professor, asserted such punitive policies force borrowers to behave to a standard to which the - finance industry wouldn’t hold itself.
White asserted communities should make decisions about how to deal with distressed homeowners based on what’s best for their own constituents, not back end investors who bought bundled mortgages on financial markets.
“It is really about distributional issues, who bears the - losses,” White said. “Banks will make every argument they can to make sure those losses fall on individuals & not on financial institutions.”
Since voting in June to keep studying the - idea, elections have replaced two council members, in addition to the - mayor, which adds another layer of political uncertainty to the - issue.
For Hernandez, whose job as a social worker has put her in contact with kids who have been uprooted when their parents couldn’t afford to stay in their home, arguments about the - law & economics are eclipsed by a desire to protect her son from the - same fate.
She says kids are more likely to thrive in a stable environment, & sudden moves or a sense of insecurity can lead to anxiety, offensive behavior & poor performance in school.
“I don’t want to do in that to my son,” she said. “That is why I am fighting so complex to keep my home.”
Contact reporter Benjamin Spillman at bspillman@ reviewjournal.com or 702-383-0285.
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