Eminent domain or principal reductions, the bottom line is reducing mortgage debt
By Matthew Goldstein and Jennifer Ablan
It’s been almost six months since we first reported on the plan by Mortgage Resolution Partners to find a community willing to use eminent domain to condemn and restructure underwater mortgages and pay a handsome fee to the private investment group for overseeing this process. The proposal has generated a lot interest, debate and heat, but so far no community is yet willing to go down this road.
Still, Steven Gluckstern, chief executive of the San Francisco-based group, said he’s confident that by early next year some community–most likely one in California–will go forward with the idea of condemning underwater mortgages and rewriting them so cash-strapped homeowners can afford the payments and stay in their homes.
But Gluckstern, in an interview with ReutersTV as part of the Reuters Investment 2013 Outlook Summit, was also a bit realistic and said if nothing gets done in the first-half of next year it may be time for his group to pack it in. In the interview, Gluckstern said he and his investors were a little taken aback by the organized opposition from investors in mortgage-backed securities, who would take a financial hit in any condemnation proceeding.
It’s too soon to say what will happen but San Bernardino County, Calif., the first community to take a close look at using eminent domain is moving slowly on the controversial proposal. Some are quietly suggesting the idea is close to dead there. Wayne County, Mich., Chicago and several towns in California are still looking at it, so who knows maybe it will happen.
Yet Gluckstern says while making money for his investors is important, he’ll be happy if the talk about eminent domain at least pushes along the cause of principal reduction. He says whether it’s eminent domain or some other mechanism, the key to getting the housing market truly fixed is helping the millions of people stuck in mortgages they can’t afford.
The idea is a recognition of the need for principal reductions and we did help bring that idea to the forefront. You can either do that consensually or with some sort of a stick or a carrot
Damon Silvers, the chief policy maker for the AFL-CIO, one of the nation’s largest unions, said he’s not sure if eminent domain is the answer to the mortgage crisis. Speaking at the Reuters summit, he said the union took a look at the issue but didn’t come to any conclusion about it being a useful tool to fix the mortgage crisis.
But Damon said housing remains the biggest obstacle to getting the U.S. economy growing at the kind of pace that can lead to meaningful consumer spending and job creation. And he said the answer is reducing mortgage principal–which he said everyone has known for the past several years.
If nothing else, the next few months of 2013 may be a pivotal time for learning if something meaningful is going to happen with the underwater mortgage problem.
For the full ReutersTV interview with Gluckstern click here.