Eminent domain powers have long been a rallying point for believers in the primacy of the Constitution and the importance of protecting private property from the rapacious hands of Big Government. A new issue has arisen that may stoke the ire of Tea Party folks and others concerned with the prospect of an ever growing role for politicians and their allies in our lives.
Various California communities are exploring — with the help of Democratic investor cronies connected to Bill Clinton and others — their eminent domain powers to seize mortgages owned by private investors. These mortgages would then be sold to a newly formed investment company who hope to buy these mortgages on the cheap and profit from them in the months and years to come.
Nick Timiraos of the Wall Street Journal reports :
A handful of local officials in California who say the housing bust is a public blight on their cities may invoke their eminent-domain powers to restructure mortgages as a way to help some borrowers who owe more than their homes are worth.
Investors holding the current mortgages predict the move will backfire by driving up borrowing costs and further depress property values. “I don’t see how you could find it anything other than appalling,” said Scott Simon, a managing director at Pacific Investment Management Co., or Pimco, a unit of Allianz SE.
Eminent domain allows a government to forcibly acquire property that is then reused in a way considered good for the public–new housing, roads, shopping centers and the like. Owners of the properties are entitled to compensation, which is usually determined by a court.
But instead of tearing down property, California’s San Bernardino County and two of its largest cities, Ontario and Fontana, want to put eminent domain to a highly unorthodox use to keep people in their homes.
The municipalities, about 45 minutes east of Los Angeles, would acquire underwater mortgages from investors and cut the loan principal to match the current property value. Then, they would resell the reduced mortgages to new investors.
Read more here.