Thousands of underwater North Las Vegas homeowners face a pair of bad options: Pay down a home that might never again be worth its purchase price or stop payments and await the inevitable, the credit-crashing crunch of foreclosure.
City Council members are expected to vote on a third way Wednesday, one that has faced a torrent of criticism from real estate agents and which relies on a controversial use of the city’s power of eminent domain.
The proposal from San Francisco-based Mortgage Resolution Partners, already adopted by five California municipalities, would allow the city to seize a bad home loan in much the same way it condemns a blighted property. The city would pay a discounted fair market value for that loan, which in these cases would be much less than the mortgage’s original face value.
Under the plan, city officials would use eminent domain to buy back as many as 4,700 troubled home loans while representatives from MRP write down homeowners’ debts as part of a new mortgage backed by the Federal Housing Administration. The company would charge the city a per loan advisory fee.
MRP representatives would put up private capital to back the venture but wouldn’t be able to guarantee the purchase or resale of the original loan to a third party.
An estimated 75 percent of North Las Vegas homeowners are still at risk of losing their home. MRP officials estimate 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.
Only about 15 percent of the city’s 30,000 underwater borrowers would qualify for the 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.
This week’s meeting could mark the first up or down vote on the divisive loan modification program since the plan surfaced at a council meeting in March.
Back then, the idea struck some real estate agents, bankers and title insurers as more of an anchor hooked to the city’s balance sheet than a life raft aimed at keeping underwater borrowers afloat.
Opponents, including Greater Las Vegas Association of Realtors representative Sean Fellows, have come to doubt the plan’s legal legitimacy.
“We oppose the use of eminent domain to take homeowners’ private property for somebody else’s profit, with no public use in mind,” Fellows said Friday. “It devalues and destabilizes the (housing) market, makes lending much harder and, frankly, raises a lot of legal questions with not enough answers.”
Unlike opponents who fear a drain on city finances from botched mortgage resales or costs associated with program oversight, Fellows worries city leaders will treat their cut of commission fees as a “shortsighted” budget patch.
He and other critics have distributed mailers that deride the effort as a “risky, speculative real estate scheme.”
Plan proponents countered with a string of neighborhood roundtables on the topic, meetings that invited a slew of homespun testimonials in support of the move and plenty of sharp words for competing federally backed mortgage retooling efforts.
MRP investors, including developer and Greenspun Media Group chairman Danny Greenspun, have cited a laundry list of court decisions and legal opinions in defense of the plan’s statutory bonafides, calling opponents’ criticism of the proposal “totally inaccurate.”
Las Vegas attorney and MRP director Byron Georgiou also expressed confidence in the plan’s legal foundation, though he puts equal faith in its potential popularity.
He expects to see the program sprout up in North Las Vegas and quickly take root in municipalities across Southern Nevada.
“The reality is nobody is doing anything,” Georgiou said at the close of a neighborhood meeting last month. “If you don’t do anything, most of these people are going to lose their homes to foreclosure.”
North Las Vegas looks set to become either the largest city to take on the MRP proposal or the smallest of three municipalities to reject the effort.
City Council members haven’t said which way they are leaning on the effort.
Ward 4 Councilwoman Anita Wood called the plan “interesting,” but stopped short of tipping her hand.
“I think it’s certainly something we need to consider,” Wood told MRP representatives at a meeting June 11. “Fannie (Mae) and Freddie (Mac) don’t seem to be doing a great job for my constituents, and the banks aren’t helping. So, if we decide not to do this, then somebody needs to step up.”
Council members will consider the proposal at 6 p.m. Wednesday at 2250 Las Vegas Blvd. North.
Contact reporter James DeHaven at firstname.lastname@example.org or 702-477-3839.