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  Mortgage Bankers Don't Like Eminent Domain and MRP Advisory Services Agreement
April 23, 2013

On February 27, the City Council approved entering into a relationship with Mortgage Partners, LLC, to implement a program to help at-risk underwater homeowners reduce their mortgage payments and stay in their homes instead of facing ultimate foreclosure.
From Richmond Confidential on February 28:
The last item the council had time for was a presentation from San Francisco-based Mortgage Resolution Partners, a community advisory firm that works with cities to stabilize local housing markets. Graham Williams, the group’s chief executive officer, asked the council to let his firm design a program to assist foreclosed homeowners who want to stay in Richmond. The partnership would not cost the city any money, he said, and the firm believes it can help 1,400 Richmond homeowners.
MRP currently works with four cities, using a plan that uses eminent domain to refinance underwater mortgages at current property values.
“Only you can prevent foreclosures in Richmond,” Williams said.
Booze was skeptical, saying he thought the group was coming in to take advantage of the city, but several Richmond residents at the meeting who waited hours just to speak on the item supported the idea.
The council unanimously voted to develop a foreclosure assistance plan with MRP
On April 2, 2013, the City Council took the next step and approved an Advisory Agreement with Mortgage Partners LLC.
There has been substantial pushback by the mortgage banking industry and its ancillary service sector affiliates. On April 18, the Securities Industry and Financial Markets Association (SIFMA) wrote a letter to the city (Final Joint Letter to Richmond City Council.pdf) protesting the action. The transmitting email is copied below:

From: Chamberlain, Kim [mailto:kchamberlain@sifma.org]
Sent: Thursday, April 18, 2013 2:55 PM
To: McLaughlin, Gayle (city); 'nbates@comcast.net'; 'jovanka_beckles@ci.richmond.ca.us'; 'corky_booze@ci.richmond.ca.us'; Butt, Tom; 'jael_myrick@ci.richmond.ca.us'; Rogers, Jim
Cc: Lindsay, Bill; 'city_attorney@ci.richmond.ca.us'; 'Patrick_lynch@ci.richmond.ca.us'; 'Carlos A. Privat'
Subject: Eminent Domain and MRP Advisory Services Agreement
Importance: High

Dear Mayor McLaughlin, Vice Mayor Boozé, and Councilmembers Bates, Beckles, Butt, Myrick, and Rogers:

We recently learned that the City of Richmond has entered into an Advisory Services Agreement with Mortgage Resolution Partners (MRP).  We sincerely regret that we are coming late to the discussion, but we wanted to make you aware of our serious concerns with this proposal and its use of eminent domain to acquire underwater mortgages in securitized pools.

Attached please find a letter signed by twenty-two different federal, state and local associations encouraging you to re-evaluate the proposal.
A hard copy is also being overnighted.  SIFMA has had some preliminary conversations with Bill Lindsay, Bruce Goodmiller, Patrick Lynch, and Carlos Privat, and we look forward to continuing this dialogue.  I am ccing them on this e-mail as well.

Thank you for your time.  Please do not hesitate to contact me at the number listed below should you have questions or want more information.

Kim Chamberlain
Managing Director & Associate General Counsel
State Government Affairs
120 Broadway, 35th Floor, New York, NY 10271
Office: 212-313-1311
Fax: 212-313-1013

Mortgage Partners LLC responded as follows:

Mayor McLaughlin, City Manager Lindsay, Council Members Bates, Beckles, Boozé, Butt, and Rogers, City Attorney Goodmiller, Assistant City Attorney Privat, and Housing Director Lynch,

I understand that SIFMA, the American Securitization Forum and other organizations recently sent many of you a form letter opposing local action to mitigate the mortgage crisis.  It is important to consider the facts behind these organizations and their role in the mortgage crisis.  This will help you understand why they sent the letter and why they seek to prolong the crisis and impede your efforts to resolve it.

These organizations and their members created the problem.  Toxic loans locked up in private label securitizations are the greatest threat to the community.  They are the most likely to be deeply underwater and to default.  Their securitization agreements are inflexible, and their servicers are overwhelmed.  SIFMA and the ASF can't and won't help because they represent the financial institutions that originated the loans, securitized them, and are managing them.

The federal government blames the securitization industry for impeding solutions.  In February of 2009, the director of the Federal Housing Finance Agency stated that privately securitized loans "represent the crux  . . .  of the problem we face in foreclosure prevention.  If we are going to stabilize the housing market, we have to address" them.  The FHFA met with the major industry players to fix the problem, yet the FHFA noted that none improved its performance.[1]  Four more years have passed, and still the industry has not solved the crisis.  It is left to local governments like yours to act because neither financial services institutions nor trade groups like SIFMA or the ASF have.

Letter's inaccuracies show bad faith.  SIFMA and the ASF have sent similar form letters to a number of local governments and media outlets over the past several months.  Independent parties have repeatedly shown that the letters are simply wrong on both the facts and the law.  For example, the letters typically state that MRP's proposal focuses on loans that are current.  Yet MRP has long advocated purchasing both defaulted and current loans,[2] and we have discussed precisely this with you. 

The typical letter also claims that the fair value of loans cannot be far below their face value, and that purchasing the loans would create losses.  Yet the FDIC recently sold a portfolio of underwater loans for only 43% of their face value, even though 80% of the loans were current, and only 20% were in default.[3]  And SIFMA even acknowledges that that the loan losses have already occurred; their real objection is having to "lock in the loss" by selling now.[4]  This is no impediment to your taking action.  A property owner's hope for future gains cannot trump your authority to purchase property at its current fair value for the public good.

Sending a letter with discredited legal arguments and false statements of fact shows bad faith and lack of respect for you and your community. 

Letter includes offensive threats.  The typical letter repeats concerted threats by the mortgage industry to litigate and to restrict lending in response to local efforts to mitigate the crisis.  Yet the Lieutenant Governor of California has publicly stated that the industry's concerted threats violate antitrust and anti-redlining laws.[5]  For SIFMA and the ASF to convey such threats is offensive and potentially illegal.  It further demonstrates a lack of respect for you and your community.

SIFMA and the ASF are hypocritical on government buying loans from trusts.  Finally, SIFMA and the ASF are on record advocating government purchasing mortgage loans out of securitization trusts and expressing their disappointment that the Troubled Asset Relief Program spent its funds on bank bailouts rather than loan purchases. 

The ASF stated:[6]

Although industry-driven loan modification and loss mitigation actions have been and will continue to be key components to preventing avoidable foreclosures, there are limits to their effectiveness in addressing the extraordinary challenges in the housing market.  As such, we believe expanded government programs may be effective in bridging this gap, and helping to address the potential foreclosures that commercial and contractual arrangements cannot prevent .  .  .  One potential opportunity is that TARP could purchase individual distressed loans out of MBS trusts, which could give the Treasury Department unlimited discretion to modify those loans . . .  The ASF supports, where feasible, facilitating such purchases as part of a broader range of loss mitigation alternatives . . .

SIFMA stated:[7] 

I am disappointed Treasury is choosing to de-emphasize the asset purchase portion of the TARP program.  Based on my experience with the Resolution Trust Corporation, I believe a key ingredient to a strong recovery is the creation of price discovery through some type of transparent purchase program . . .  Understandably, Treasury has both limited time and resources and must make hard choices. But as we move forward .  .  . we hope there will be further opportunities to comprehensively revisit this important program.

Now you are revisiting the important proposal to buy loans out of securitization trusts.  It is offensive that SIFMA and the ASF have changed their tune and oppose the proposal.  Perhaps they assumed that TARP would overpay for loans, whereas you will pay actual fair value.  Or perhaps they only respect the federal government and do not respect you or your constitutional authority to save your community.

If you have any further questions about these organizations and their role in creating and prolonging the crisis, please feel free to email or call me.  We at Mortgage Resolution Partners look forward to continuing to work with you to protect your homeowners and your community.

/n1/:  See the FHFA director's speech, page 5, at http://www.fhfa.gov/webfiles/823/ASFSpeech2909.pdf.

/n2/:  See, for example, http://www.pe.com/local-news/politics/imran-ghori-headlines/20120906-san-bernardino-county-mortgage-aid-expanded.ece.

/n3/:  See http://m.cutimes.com/2012/11/13/self-help-fcu-purchases-141-million-in-mortgages and http://www.resurrectionproject.org/news/4636.

/n4/:  See comments of SIFMA's Chris Killian in http://www.reuters.com/article/2013/04/16/us-usa-housing-eminentdomain-mortgages-idUSBRE93F0X320130416.

/n5/:  See the Lt. Gov.'s letter to the U.S. Department of Justice at http://www.ltg.ca.gov/09102012_LTG_DOJ_LETTER.pdf.

/n6/:  See testimony of Tom Deutsch to Congress, http://archives.financialservices.house.gov/hearing110/deutsch_-_asf.pdf.

/n7/:  See statement of Tim Ryan, http://www.sifma.org/news/news.aspx?id=8912.

Best regards,


John Vlahoplus
Founder and Chief Strategy Officer
Mortgage Resolution Partners LLC

It is widely accepted that the mortgage banking industry and its Wall Street institutions caused the Great Recession that we are now pulling out of. They have always been the problem, not the solution. They have no credibility and no solution of their own, and it is ironic that they have taken such a strident position regarding a creative solution that will help some people to preserve their home ownership.

[1] See the FHFA director's speech, page 5, at http://www.fhfa.gov/webfiles/823/ASFSpeech2909.pdf.

[5] See the Lt. Gov.'s letter to the U.S. Department of Justice at http://www.ltg.ca.gov/09102012_LTG_DOJ_LETTER.pdf.

[7] See statement of Tim Ryan, http://www.sifma.org/news/news.aspx?id=8912.