Eminent Domain Seizures Unlikely to Affect Borrower Repayment
As the debate continues to rage over the use of eminent domain to seize underwater mortgages, the Royal Bank of Scotland released a report Aug. 3 that indicated such seizures would probably have little impact on borrowers’ ability to make their mortgage payments, HousingWire reported.
RBS analysts reviewed the number of homes backing privately securitized mortgages in San Bernardino County, Calif.; Suffolk County, N.Y.; Chicago; and Berkeley, Calif.; city councils in all four areas are considering use of eminent domain to seize underwater mortgages.
“Default rates for these deeply underwater borrowers have decreased over time in every region studied,” the RBS report concluded, HousingWire reported.
The report noted that 26,301 underwater mortgages in San Bernardino went 30 days delinquent only once, yet these mortgages would be eligible for its proposed eminent domain program. Another 14,478 mortgages would have qualified as of June 2011, yet of these, 81 percent remained current after a year.
RBS further noted that if home values continued to improve, there may be no need for eminent domain.
The report noted that in Chicago, an eminent domain program would have almost no effect, HousingWire reported. As of June 2011, fewer than 4,000 underwater mortgages would have qualified for the program, and a year later, 80 percent of those remained current on payments.
Suffolk County officials said they would not proceed with consideration of any eminent domain plans until they see what San Bernardino does.
The prospect of using eminent domain to seize mortgages has enraged bondholders who would have to sell mortgages from their securities to municipal governments at deep discounts. While they would experience deep losses, Mortgage Resolution Partners (which conceived of the eminent domain plan and is consulting with various cities) and its investors would enjoy big gains — returns could be as high as 30 percent.