Published Tuesday, June 11, 2013 | 2 a.m.
Updated Tuesday, June 11, 2013 | 8:53 a.m.
For the past two years, representatives from Mortgage Resolution Partners have traveled to cities around the country to pitch local governments on a plan to help underwater homeowners keep their homes.
Their proposal would use private dollars to help these homeowners refinance their mortgages and reduce the principal owed, staving off costly foreclosures that can wreak havoc on neighborhoods.
But there’s a catch, and it’s a big one. The process requires cities to use their powers of eminent domain, a prospect that immediately invokes negative connotation and strikes fear into elected officials wary of being accused of unjustly taking private property.
MRP representatives argue the fear of eminent domain is overblown and would be used only to facilitate the refinancing once the mortgage-holder has agreed to the process.
Still, after years of lobbying, only five California cities have agreed to the plan while countless more have rejected it, either officially or through a lack of interest.
North Las Vegas could become the sixth and largest city to partner with MRP later this month, when the city council could make a final decision after months of study and debate.
The recession-ravaged city is still struggling with high foreclosure rates and would serve as an ideal test case for those pushing MRP.
On Tuesday, the council will conduct a second special meeting to discuss MRP’s proposal, this time focusing on alternative ways to address the housing crisis that will include a panel of representatives from title companies, mortgage banks and nonprofit housing organizations.
Mortgage Resolution Partners’ plan calls for the company’s private investors to purchase a specific subset of underwater home mortgages held in mortgage-backed securities. The mortgages would be bought at market value significantly below their initial value and then refinanced back to the original homeowner with a lower principal.
North Las Vegas would serve as the middleman in the process, using its power of eminent domain to seize the mortgages from trusts that own the mortgage-backed securities. Once the mortgage is refinanced and sold again, the city would receive a small fee for its troubles.
Investors in Mortgage Resolution Partners would see a return on their investment whenever a home is refinanced, and the company itself would receive a flat $4,500-per-transaction fee.
The lack of proven results in other cities coupled with protests from bankers and Realtors have caused unease among the city council members, who still have unanswered questions about the program’s impact on home values, credit ratings and loan availability, among other concerns.
“I think this is so new, there are a lot of unintended consequences that could come down the pipe,” Councilman Wade Wagner said. “I think some people think it’s a little scary to be the first. That doesn’t give me much fear. We’ve been the first to do a lot of things in North Las Vegas. What I’m more interested in is seeing all of the ramifications of the program. Sometimes when the government gets involved to solve one problem, it creates five others.”
MRP’s Nevada representatives — including Las Vegas attorney Byron Georgiou, developer Michael Saltman and Daniel Greenspun, a member of the family that owns the Las Vegas Sun — have promised the council the program would be free to the city and they would be exposed to no legal liability. Although their assurances are based on thorough research and expert legal opinions, the true ramifications of the program likely won’t be known until it’s tested.
When that will happen is unclear. None of the five cities that have signed advisory agreements with MRP has entered the phase where eminent domain comes into play to purchase and refinance mortgages.
El Monte, a working-class Los Angeles suburb of about 113,000 people, signed one of the first agreements with MRP in December but is still at least two months away from beginning mortgage purchases, said Jesus Gomez, acting city manager.
“It isn’t as easy as just a bank modifying a loan,” Gomez said. “It’s more complicated because you’re dealing with the securities industry.”
Even if the California cities begin successfully acquiring and refinancing mortgages, they provide a poor case study for the much larger North Las Vegas.
El Monte is the largest city so far to sign on with MRP, followed by Richmond, a Bay Area town of 103,000. On the opposite population end, San Joaquin, a city of 4,000 people, and Orange Cove, population 9,100, have also signed agreements with MRP.
Gomez estimated less than 100 homeowners in El Monte would benefit from the program, while in North Las Vegas MRP representatives said there could be as many as 4,700 eligible mortgages.
San Bernardino County and its 2 million residents offer a closer comparison to North Las Vegas and Clark County, but officials there rejected MRP in January after a yearlong courtship.
“We had a lot of people that are experts in that area tell us that it would be a disaster and we had a lot of people in the public who didn’t support it,” said San Bernardino County spokesman David Wert. “Basically the only thing we were hearing is that it was a bad idea. We weren’t hearing from anybody who was saying it was a good idea and that we should go forward.”
Although San Bernardino County scrapped MRP’s pitch, officials issued a request seeking proposals for other ways to help underwater homeowners, with the caveat that they don’t use eminent domain, Wert said.
Richmond is the most recent city to engage MRP’s services after signing an agreement in early April. City Manager Bill Lindsay describes Richmond as a city with a lot of foreclosures and a lot of vacant homes as a result of the housing crisis, echoing North Las Vegas’ situation.
He said staff and council members felt comfortable with the program after writing in assurances that eminent domain would only be used on homeowners willingly participating in the program. Officials hope it will help stabilize the turbulent housing market, he said.
“What I’ve found is when you’re dealing with these foreclosure issues there’s not a one-size-fits-all approach that you can use,” Lindsay said. “We know that (MRP) perhaps benefits a limited number of properties … who knows, it might not end up working for various reasons. It’s still something that has the potential to be beneficial, so it’s worth a try.”