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El Monte Wants to Seize and Refinance Underwater Mortgages

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El Monte is considering a plan that would allow the city to seize underwater mortgages from banks to help struggling homeowners. It's an idea dismissed by other Southern California cities, but recently adopted by Richmond, in northern California--last week, it contacted the holders of 620 underwater mortgages and asked them to sell their loans to the city. If they refuse, the city says it will use eminent domain to take over the mortgages, write down the loans, and refinance them for the underwater owners. As the LA Times explains, "eminent domain usually is used to seize land--not loans--to serve the public good, as when local governments seize blighted property," and, unsurprisingly, the idea is proving unpopular with Wall Street types. They say it'll hurt people who invested in mortgage-backed securities--the financial instrument that helped create the recent enormous recession that likely got those homeowners into trouble. (Would this also mean people might be less likely to invest in these securities? Because gee, that would be a damn shame.) The plan has big support from El Monte's mayor, who says he was frustrated that "Wall Street got a lot of the bailouts and benefits, and you are seeing the market has really shot back to life in really a huge way, but Main Street is still suffering."
· El Monte considers eminent domain plan for underwater mortgages [LAT]