San Bernardino County, the largest county in the nation, has cities with some of the nation’s highest foreclosure rates. Property values have fallen so sharply in there that roughly half of the homes in the region owe more than their houses are worth, and the unemployment rate remains at nearly 12 percent. On July 10, the City of San Bernardino became the third California city to file for bankruptcy.
More than 20,000 borrowers in the county could ultimately be eligible for the program, which would first focus on Fontana and Ontario, two of the largest cities in the county.
Traditionally, eminent domain is used by governments to forcibly seize private properties for public use to build highways, new shopping centers and other projects.
Critics, including the banking and the securities industries, said the idea will almost certainly be challenged in court, entangling the county in lengthy and costly litigation with the holders of the existing loans. Fitch Ratings, the global credit rating firm, warned that using eminent domain to seize mortgages could affect $7 billion in bonds, endangering the local residential mortgage-back securities industry.
Proponents, on the other hand, argue the program would not target banks or government-backed mortgages, only securitized mortgages. Supporters say the proposal will also aid struggling borrowers and help spur the area’s housing market, which has a foreclosure rate that is 3.5 times the national average.
Both sides acknowledge that the proposal, if adopted, will likely end up in court.
What do you think readers? Is using eminent domain going to solve San Bernardino County’s foreclosure problem? Or is this just another example of government over-reach masquerading as good policy?