North Las Vegas City Council members threw a controversial lifeline to underwater homeowners Wednesday, picking up a complex, amended plan aimed at keeping thousands of upside-down borrowers in their homes.
The proposal passed on a 4-1 vote, with Ward 4 Councilman Wade Wagner against it. Under it, the city entered into an advisory services agreement with Mortgage Resolution Partners, or MRP, the San Francisco-based authors of a controversial program that refinances underwater home loans seized through eminent domain.
Nevada’s third-largest city becomes the first in the state to offer even a cautious welcome to the effort, one that opponents — including real estate agents, mortgage bankers and title insurers — warn could face a series of challenges in court.
Tweaks to the proposal Wednesday ask MRP to take stock of how many homeowners will be helped by the effort and at what cost to the city.
The amended agreement also lets city leaders opt out of the program at any time before it circles back to City Hall in August, when officials will consider broadening it.
Once in place, the plan allows city officials to seize a bad home loan in much the same way it condemns a blighted property.
The program will see city officials use eminent domain to pay mortgage investors less than face value for a troubled home loan while representatives from MRP restructure the homeowner’s debts in a new mortgage backed by the Federal Housing Administration.
The company will charge the city a per loan advisory fee, and both parties will take a cut on the difference between the original bad mortgage and a new, FHA-backed loan resold to third-party mortgage investors.
An estimated 75 percent of North Las Vegas homeowners are still at risk of losing their home. MRP officials suggested that could cost the recession-ravaged city, which teetered on the brink of bankruptcy this time last year, some $50 million in lost property tax revenues.
About 15 percent of the city’s 30,000 underwater borrowers qualify for the revised plan, which applies only to private label securities — bundled mortgages not held by Fannie Mae and Freddie Mac, which have been left largely untouched by federal housing refinance efforts.
North Las Vegas homeowner Darrell Whaley, one of those left in the cold by efforts to enroll in more than a dozen federally backed loan modification programs, offered heartfelt support for the program.
Without it, Whaley said, homeowners like him would have nowhere to go.
“I’m over $200,000 upside down in my home,” Whaley told council members and a standing-room-only crowd at City Hall. “I can assure you I’ve looked into every government program, and I would have to default, or I would have to stop making payments in order to qualify.
“There is no government program for me. I need you to take a shot at this.”
MRP representatives plan to raise private capital to back the purchase of loans like Whaley’s but said they couldn’t guarantee the resale of that debt to a third party.
Nevada Bankers Association President Bill Uffelman fears investors won’t line up to buy some 4,700 city-acquired loans, leaving unqualified borrowers and other North Las Vegas taxpayers on the hook for thousands of underperforming notes the city can’t unload.
He also voiced legal concerns over the move, one he and other plan opponents said could run afoul of state limits on the transfer of eminent domain-acquired property between private parties.
“It’s an unconstitutional taking of property rights,” Uffelman said Wednesday. “Investors in these mortgages will have standing to sue, so any revenue stream for the city is a long way off.”
Those fears spooked Wagner, the only one of five council members willing to voice unqualified opposition to the effort.
“There’s a lot of unanswered questions,” the Ward 4 councilman said. “But I think the only thing it guarantees is a lot of litigation for a lot of years.”
MRP investors, including developer and Greenspun Media Group Chairman Danny Greenspun, have cited court decisions and legal opinions in defense of the program, calling criticism “totally inaccurate” in neighborhood meetings before this week’s vote.
Wednesday saw Greenspun express similar confidence in the plan’s popularity, suggesting an MRP toehold in North Las Vegas could grow into a launchpad for expansion into Las Vegas, Henderson and the rest of Clark County.
Greenspun said before this week’s meeting, “Sure we’ll keep going. ... There’s no reason we wouldn’t take it elsewhere.”
Contact reporter James DeHaven at firstname.lastname@example.org or 702-477-3839.