City proposals to seize underwater mortgages using eminent domain may only affect a small percentage of privately securitized loans if successful, but investors remained worried that may be enough for the entire concept to poison certain mortgage-backed bond markets.
Should municipalities such as San Bernadino use eminent domain and survive the legal challenges sure to come, the proposal would affect less than 1.5% of private-label security loans in the affected areas, according to researchers at Nomura Securities.
The proposal requires the trust to sell the loan at court-determined fair-market value to the local governments using newly raised private capital. Principal would likely be reduced, allowing the borrower to refinance into a Federal Housing Administration loan, meaning it could be repackaged into Ginnie Mae pools.
Read More: Mortgage bond investors fear eminent domain will contaminate TBA market
Travis Saxton is the marketing and technology manager at REAL Trends. Prior to operating this arm for REAL Trends, Travis was the director of online services for a newspaper consulting company. He greatly enjoys working with real estate companies adapt new cutting edge strategies and perfecting their online presence and systems. He has experience in the following areas: Websites, SEO/SEM, CRM/Lead Generation Systems, Traditional Marketing and Social Media Marketing, Real Estate Technology Consulting.
