North Las Vegas City Council members scuttled a controversial life raft for underwater homeowners Wednesday, moving 5-0 against a complex plan aimed at keeping thousands of upside-down borrowers in their homes.
Nevada’s fourth-largest city becomes the first in the state to reject the effort, one that relies on a contested use of the city’s power of eminent domain and which opponents — including real estate agents, mortgage bankers and title insurers — warned could face ongoing challenges in court.
At least one lawsuit has already been filed to halt preliminary progress on the proposal, which won tentative support from four of five City Council members interested in hearing more about the effort earlier this summer.
The divisive plan would have seen the city seize bad mortgages in much the same way it condemns a blighted property, with San Francisco-based Mortgage Resolution Partners, or MRP, funding North Las Vegas’ attempts to buy at-risk home loans currently held by banks and mortgage security investors.
The city would look to pay less than face value and resell those loans to homeowners at a lower monthly payment. If a bank rejected a company-backed opening bid, the city would seize the loan, paying the bank a price based on the property’s current fair market value rather than the value used in setting the original home loan. The bank would have to write off the difference.
The company stood to collect a $4,500 per transaction fee and the city looked set to pick up a percentage of proceeds on the successful resale of as many as 4,200 qualifying loans.
MRP’s plan would have applied only to so-called private label securities, or those not owned by federally backed mortgage holders Fannie Mae and Freddie Mac.
Federal loan officials have warned the city that the federally backed mortgage giants would likely “limit, restrict or cease business activities” in communities that adopt the eminent domain proposal, making the security of other people’s mortgages the biggest question raised by many plan opponents, including some on the City Council.
“The home foreclosure crisis hit our town particularly hard and although I believe government has a role in helping, it is important the cure does not become worse than the disease,” said first-term Mayor John Lee. “Our valley is experiencing a fragile recovery where home values are rising and new home construction is coming back. It does not make sense to risk this delicate environment with unproven experimental programs.”
Public comment before Wednesday’s vote looked much the same as June’s heated introductory hearing, with legal threats from plan detractors that prompted a full-throated defense from plan proponents and investors in MRP.
But inside the council chambers, a lot had changed. Two of those bullish about the proposal — former Mayor Shari Buck and term-limited Councilman Robert Eliason — both departed after June’s election, leaving Anita Wood and Pamela Goynes-Brown as the only two sitting council members to vote in favor of the proposal’s reintroduction this week.
By the end of Wednesday’s meeting, both had backed away from the effort.
Goynes-Brown said her shift had more to do with the proposal’s scope than its intentions, explaining the city just didn’t have the manpower or finances to see the proposal through.
For Wood, the effort simply raised more questions than it answered.
“There are still a lot of questions,” she said. “There are still issues over whether tax abatements will continue after the end of this year at the federal level. There are legal proceedings in the state of California that still need to be resolved and I think they need to be resolved in California, or at the federal level, before the City of North Las Vegas gets involved in this.”
An estimated 75 percent of North Las Vegas homeowners are still at risk of losing their homes. MRP officials suggested that could cost the already recession-ravaged city, which teetered on the brink of bankruptcy this time last year, some $50 million in lost property tax revenues.
Those losses remain a concern to the eminent domain proposal’s backers, who, like the plan’s authors, hope to see the effort take root in greener pastures.
MRP’s partners claim proposal opponents at the Greater Las Vegas Association of Realtors spent some $1.3 million on TV, radio and print ads aimed at killing the effort.
Company partner Danny Greenspun said those dollars amount to little more than a public relations victory. He expects the firm will look to revive the effort with elected officials in Henderson, Las Vegas and Clark County.
“They spent a great deal of money making stuff up and lying about us,” Greenspun said of his opponents at the realtors association. “They frightened people unnecessarily, based on a lot misinformation, because they’re afraid (the program) is viable and they don’t want it tested.
“That’s wrong and they should be ashamed.”
North Las Vegas counts as the smallest of three municipalities to pass on the effort, which won support from Richmond, Calif. city council members in July.
Contact Centennial and North Las Vegas View reporter James DeHaven at firstname.lastname@example.org or 702-477-3839.