Gavin Newsom. Credit: Thomas Hawk. Flickr.com
California Lieutenant Governor Gavin Newsom has asked the Department of Justice to investigate possible collusion and mortgage industry threats against California municipalities. San Bernardino, Sacramento, and other cities are considering using eminent domain to seize mortgages and restructure the terms to help struggling homeowners. Newsom says the mortgage industry may be colluding in restraint of trade to stop this as well as making threats and calling for illegal boycotts against those involved.
In a letter to Attorney General Eric Holder, Newsom wrote:
It has come to my attention that investors in private label securitization (PLS) trusts may be colluding to restrain trade and redline communities in California since they became aware of the proposal to use eminent domain to purchase loans from PLS trusts.I am most disturbed by the threats leveled by the mortgage industry and some in the federal government who have coercively urged local governments to reject consideration of any proposal that would exercise the powers constitutionally granted local governments to use eminent domain to help stem the intractable mortgage crisis in America.
A private company, Mortgage Resolution Partners, has proposed to San Bernardino that they act as a broker to sell distressed properties to investors at market value after the city uses eminent domain to seize the mortgages. The new mortgages would have greatly reduced payments, thus allowing homeowners to save their houses. The PLS trusts who own the existing mortgages oppose the eminent domain plan as they would lose money.
Newsom quotes from a private report by analyst Laurie Goodman stating that "non-legal channels" have been discussed and that investors can "apply business pressure to stop the program" by refusing to work with anyone involved in it.
Newsom responds, "This is a boycott and it is a per se violation of the Sherman, Clayton, and Robinson-Patman Antitrust Acts" noting that PLS investors "have in fact threatened companies that are heavily involved in the program."
The Federal Housing Finance Agency says it has concerns about the eminent domain plan as do the PLS trusts. Newsom says he is not endorsing the plan but simply wants communities in California to be able to determine plans for themselves "without fear of illegal reprisal by the mortgage industry or federal government agencies."