Published Wednesday, June 19, 2013 | 8:35 p.m.
Updated Wednesday, June 19, 2013 | 11:30 p.m.
North Las Vegas is moving forward with a controversial plan to partner with a private company and use the city’s power of eminent domain to help underwater homeowners refinance their mortgages.
The city council voted 4-1 Wednesday night to enter into an advisory services agreement with Mortgage Resolution Partners, the company pitching the plan.
The agreement gives the company permission to begin surveying the North Las Vegas housing market for mortgages that would be eligible for refinancing under its program. The company will have 60 days to develop a program to help these homeowners before it must report back to the city council.
Another affirmative vote would be required by the council before any mortgages were acquired using eminent domain.
The agreement signed Wednesday is terminable at any time by the city and also requires MRP to provide a detailed explanation of the potential costs and risks to the city if it chooses to implement the program.
While MRP is inventorying the market, city staff will also be doing their due diligence, including soliciting an outside legal review of the program and looking into what aid is already available to underwater homeowners through state, federal and nonprofit housing assistance programs.
North Las Vegas is the sixth and largest city to pursue MRP’s plan, which calls for the company’s private investors to purchase a specific subset of underwater home mortgages that are 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 fee of several thousand dollars 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.
Wednesday’s meeting was a culmination of months of lobbying on the issue, which has drawn fierce opposition from the real estate and banking industries.
Over the course of more than an hour, a stream of residents, Realtors and bankers repeated the litany of criticisms that have been lobbed at the program over the past months, including that it would destabilize the housing market and expose the city to expensive litigation. Concerns were also raised about the use of eminent domain to benefit a private party.
“The issue of eminent domain is one of those rights that we fundamentally are concerned about. If something is actually taken for public use and for the benefit of the public, that’s certainly a potential use,” said Nelson Janes, CEO of the Greater Las Vegas Association of Realtors. “It should not be an action that could benefit individuals and perhaps not benefit those from whom the property is being taken.”
Others spoke out in favor of the program, including several underwater homeowners nearing desperation after several failed attempts to modify their mortgages and representatives from the local chapters of the Culinary Union and the Service Employees International Union.
Council members have spent dozens of hours at this point studying MRP’s proposal. On Wednesday, they made repeated mention of “unanswered questions” about the program, but signaled a willingness to continue forward.
Although there are many state and federal programs that aid underwater homeowners, Councilwoman Anita Wood said it’s not clear that those are having the needed impact.
“If all these options are working so well than why are all these people still suffering?” she said. “We have got to come up with some programs that work for our residents. Refinancing and getting out from an underwater home (mortgage) in this economy should not take years and should not be so difficult.”
Woods voted in favor of the agreement with MRP, but laid out several questions she wants answered when they return in two months, including what happens in the case of second mortgages on a home, can residents be pre-qualified for the program and how the value of a mortgage would be calculated for eminent domain purposes.
Councilman Wade Wagner cast the lone vote against the agreement, citing deep concerns about the way eminent domain would be used in the process.
“We’ve heard a lot of testimony over the past few months on this issue. There’s a lot of emotion and thought that’s been tied up into this,” he said. “To me it comes down to the eminent domain laws ... In my opinion this is not for the public use, it’s not for the good of the residents of North Las Vegas.”
Wagner worried that the city would need to create a new division to oversee the program’s implementation and that there was no hard guarantee that a homeowner would get to stay in their house after the refinancing.
“I think the only thing it really guarantees is we’ll be tied up in a lot of litigation for a lot of years,” he said.
Although Wednesday’s victory provided a bit of momentum for MRP, the company will face a reshuffled city council when they report back in August after the recently elected John Lee and Isaac Barron replace Mayor Shari Buck and Councilman Robert Eliason, respectively. Both Buck and Eliason voted in favor of MRP in their final meeting on the council.
Byron Georgiou, one of the Nevada representatives for MRP, a group that also includes developer Michael Saltman and Danny Greenspun, a member of the family that owns the Las Vegas Sun, said the company will spend the next two months addressing all the concerns raised by the council and incorporating them into the program that’s presented in August.
“It’s a first step but it’s an important step,” Georgiou said after Wednesday’s meeting. “I congratulate the council members on their courage in taking a step that was necessary on behalf of their citizens who have been struggling so mightily during this recession."