Hesperia Nixes Taking Part In Mortgage Quashing JPA

HESPERIA—Hesperia Mayor Russ Blewett’s colleagues have rejected his call to have their city join a regional group intended to help homeowners who are upside down on their mortgages. On June 5, the Hesperia City Council voted down an invitation to join the Homeowner Protection Joint Powers Authority (JPA) that has been formed by the county of San Bernardino and the cities of Fontana and Ontario.

Russ Blewett

Blewett, who flips houses for a living, sought to persuade his fellow council members that joining the JPA was worthwhile since declining property values have close to 50 percent of the city’s homeowners “underwater,” i.e., owing the institution that lent them the money to buy their homes more than the homes are presently worth.
The JPA, which was championed by San Bernardino County Chief Executive Officer Greg Devereaux, has chartered itself with the ability to use the eminent domain process. Eminent domain has traditionally been used to condemn and acquire property for public use. The JPA is contemplating utilizing condemnation procedure to force lenders to hand over the mortgages that are in arrears so that they can be refinanced to provide the homeowners with more affordable payments.
Blewett said lending institutions’ policies of sitting on foreclosed homes has stagnated the local economy and blocked recovery. He said at least 3,000 homeowners in Hesperia would benefit if the city joined the JPA. In the end, the only member of the council Blewett convinced was Bill Holland.
Council members Thurston Smith, Mike Leonard and Paul Bosacki, concerned that the already cash-strapped city would not be able to sustain the cost of participating, opposed the idea.
The JPA, which involves the county’s best funded municipality – Ontario – and the county’s third most flush city – Fontana – boasts the participation of the county as well pursuant to a vote by the board of supervisors this week. Throughout the county, 264,122 of the 488,422 single family homes in its constituent 24 incorporated cities and towns and unincorporated areas have at some point in the last four years been underwater.
Of those 254,122 homeowners in arrears, 63.7 percent or 151,876 had received notices of default. Unemployment in the county is roughly 12.6 percent. The JPA was created to assist those troubled homeowners stave off foreclosure.
While some elements of the community have criticized governmental involvement in the restructuring of home mortgages as progressive socialism, the JPA’s action will potentially provide businesses with the opportunity to make a profit.
A San Francisco-based investment group, Mortgage Resolution Partners, stands ready to work with the JPA to step in as a participant if officials resolve to use condemnation proceedings to acquire mortgage notes. Pursuant to the condemnation, the current owners of the loans would be forced to sell at a price deemed to be fair market value pursuant to a court’s determination.
Mortgage Resolution Partners has created a niche for itself by working to counteract the proliferation of so-called securitized mortgages, i.e., the practice of bundling mortgages which are then sold to massive numbers of investors. That practice has been seen as a contributory factor to the mortgage crisis because it has created a situation in which a single lender no longer holds the mortgages, preventing homeowners from renegotiating their loans when the value of their property has plummeted.
While the JPA has not committed to utilizing eminent domain to acquire the mortgages and has not signed off on  partnering with Mortgage Resolution Partners, Mortgage Resolution Partners has already secured the backing of investors representing over a billion dollars in ready capital to fund the effort and take possession of the mortgage notes in line with the current market value of San Bernardino County homes they are tied into. The homeowners would get renegotiated loans that reflect the actual value of the property. Mortgage Resolution Partners would earn a fee on each transaction.
Within the mortgage and real estate industry there is concern about the involvement of the government in the mortgage industry and the use of eminent domain and condemnation procedure.
The Inland Valleys Association of Realtors has stated that the use of eminent domain to seize mortgages in the numbers contemplated “could result in the biggest combined public taking in the history of California.”
While the JPA is leaning toward using the eminent domain strategy to obtain and quash the delinquent mortgages, other options are being explored, including bringing in private broker negotiators to change the terms of loans or coordinating relief for upside down homeowners through the federal Home Affordable Refinance Program. At present the median home price in the county stands at $150,000.

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