Bank of New York Mellon v. City of Richmond, California et al

Filing 60

Declaration of Brian D. Hershman in Support of 59 Opposition/Response to Motion, for Rule 11 Sanctions filed byU.S. Bank National Association. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G)(Related document(s) 59 ) (Hershman, Brian) (Filed on 11/22/2013)

Exhibit C

January 24, 2013, 7:45 PM ET

Eminent Domain Bid for California Mortgages
Rejected
ByAl Yoon

Steven Gluckstern

Steven Gluckstern, of Mortgage
Resolution Partners

After months in the spotlight, a group formed by three Southern California municipalities has backed
down on a plan to seize and restructure troubled home loans.
The local group, whose mission includes addressing the problem of underwater mortgages, rejected on
Thursday the use of eminent domain as a way to restructure those loans, a win for banks and securities
firms fighting the idea.
Members of the Joint Powers Authority, set up by San Bernardino county with representatives from the
cities of Ontario and Fontana, said they would make a formal request seeking plans to improve on
existing foreclosure-prevention programs.
But the use of eminent domain to address the problem won’t be part of that request, amid concern that it
could destabilize an already weak Inland Empire housing market, said Gregory Devereaux, San
Bernardino county’s chief executive. Community support for the proposal, which critics have said would
raise costs and curb the availability of home loans, was lacking, he said.
“It’s wrong to impose that risk on the community without support from the community, and that level of
support has not materialized,” Mr. Devereaux said. “We don’t want to do more harm than good in what we
choose to do.”

Under an idea advocated by San Francisco-based advisory group Mortgage Resolution Partners, a
municipality would use its powers of eminent domain to purchase underwater loans that are locked up in
mortgage securities, using money from private investors. The loan would then be refinanced through a
government program to cut principal slightly below the property value.
Mortgage Resolution Partners was set up by venture capitalists including Graham Williams, a former
Bank of America executive who spearheaded low-income lending programs, and Steven Gluckstern, an
entrepreneur who once owned the New York Islanders hockey team. The group says that cutting principal
will be the best way to remove the burden of homeowners in hard-hit regions, and that severe measures
are required because four years of other programs have had limited effect.
More In Mortgage Resolution Partners

HUD Takes a ‘Wait and See’ Approach on Eminent Domain
Richmond Mayor Says Lawsuit Won’t Deter Loan Seizures
Freddie Mac Considers Legal Action to Block Eminent Domain Plan
California City Readies Controversial Loan-Seizure Program
Fed Economists: Weigh 'Good News' in Eminent Domain Debate

Last year, the authority’s approval of a resolution that would allow the municipalities to use eminent
domain on underwater loans alarmed the mortgage and mortgage-securities industries, where lobbyists
and investors warned the seizure of loans would violate contracts and chill lending because banks
wouldn’t want to be exposed to future risks.
Tim Cameron, a managing director of Wall Street trade group Securities Industry and Financial Markets
Association, said the authority’s decision was “a warning sign to other jurisdictions that there aren’t many
out there that believe the use of eminent domain in this fashion is the way to solve the housing crisis.”
But while San Bernardino was a “linchpin” for the MRP program, the issue hasn’t been put to rest as other
municipalities are studying participation, Mr. Cameron. He will meet with officials from Brockton, Mass.,
about its review of eminent domain, he said.
Indeed, Mr. Gluckstern, who is chairman of Mortgage Resolution Partners, said his firm will forge ahead
in talks with some 30 other municipalities. Other cities considering ways to reduce underwater loans have
included Chicago, Detroit and Sacramento, Calif.
“We are of course disappointed but we are in active conversations with many other communities
throughout the U.S., and we expect our program will be put in place, in one or more places, in the next
few months.”
Acquanetta Warren, mayor of Fontana, said the city would keep eminent domain on its plate of possible
solutions, despite the decision of the Joint Power Authority. “We are still talking to (Mortgage Resolution
Partners),” Ms. Warren said. “We can’t just leave the public hanging like that. It’s irresponsible not to
consider all options.”
In addition to banks, MRP is also fending off opposition from mortgage-bond investors, who have
complained that the plan would saddle them with losses as the loans would be purchased from their
bonds at discounts. The MRP plan focuses on the so-called private-label mortgage bonds that don’t have
backing from taxpayer-supported Fannie Mae and Freddie Mac.
They also say that profits made by the private firm and its investors would violate the “public use” rule
used to justify eminent domain.

The Federal Housing Finance Agency last year warned that it might act to prevent the proposed use of
eminent domain, citing risks to Fannie Mae and Freddie Mac, which hold billions of dollars in private-label
mortgage bonds in their portfolios.
MRP, in a letter urging the authority to consider its eminent domain plan, reiterated assertions that the
housing crisis would linger without principal reduction efforts. Of 59,000 private-label mortgage loans in
the county, 42,000 are underwater, according to MRP.
More broadly, eminent domain could be a solution for some of the 2 million private-label loans nationwide
that are still likely to default, MRP said, citing a forecast by Fannie Mae.
“We are at the very beginning of the fight,” Mr. Gluckstern said. “Principal reduction has to happen.”

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