In 2012, local governments in San Bernardino County took steps to become a laboratory experiment to test an expansion of the limits of government power in real estate finance. Touted, inaccurately, as a program to save homeowners facing foreclosure, the plan would use local government power of eminent domain to take control of underwater mortgages at below market value and, in the process, deliver profits to a private company, its investors and to government agencies. Three agencies – the Cities of Fontana and Ontario, and the County of San Bernardino – were solicited by an outside firm to explore the idea and launch the program.
Precedent-setting risk, government expansion and cost would be undertaken in order to address loans held by one in 10 homeowners, in a category that is facing default at a rate that has plunged to just above 10 percent. Another goal of the program – to stabilize home values and help spur a rebound – is taking place without any such government overreach. Home values are now up by nearly 20 percent since the beginning of the year, with the price increases accelerating every month since March.
Inland Valleys Association of Realtors® (IVAR) moved the debate from private conversations into the public sphere, engaging the public, the industry, media and experts to fully and transparently analyze a troubling proposition. Working with a coalition that included the most influential industry voices in the country, IVAR helped to illuminate an idea that few knew existed. In the process, IVAR was asked to participate in discussions from Washington D.C. to Sacramento – and to help inform coverage of the issue by the nation’s leading newspapers, television news and radio.
Despite the widespread, damaging effects possible in the experiment – as well as the universally negative reaction the idea elicited in two public meetings from residents and – businesses – its proponents now look to 2013 to move their plan forward here, around California and across the nation. Fortunately, leaders in local communities have taken time to carefully collect information, examine the idea and, so far, applied brakes to any program launch while deliberating the issue.
For a complete discussion of this complicated proposal and fallout, please visit http://advocacy.ivaor.com/current-issue.aspx#jpaanchor.
IVAR is working not only to keep this plan out of the Inland Empire, but also helping communities across the country prepare to do the same. Whether this plan gains a foothold here, in a community nearby or in another state, the fallout can potentially affect our housing recovery. According to national mortgage finance experts, this plan threatens some of the basic underpinnings of private finance in mortgages. If there is to be a needed recovery of private investment in home mortgages (as opposed to what has become a taxpayer-backed system), a plan that wallops investors with losses they never anticipated cannot help that process.
IVAR believes that the resolution of our troubled – yet finally improving – housing market will not come through creative schemes whose ingenuity and risk is matched only by the creative credit ideas that helped form the mess in the first place.
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