Wall Street’s largest lobbying firm, the Securities Industry and Financial Markets Association, is crying foul at calls for the use of eminent domain laws to seize and restructure underwater mortgages, Bloomberg News reported. The firm is concerned that forcing private entities to sell bonds at a fair price will lead to a slippery slope of further government buyouts.
“We have very serious concerns and strong objection to the concept of using eminent domain to seize a mortgage for the purpose of restructuring it, no matter how meritorious the goal might be,” Ken Bentsen, SIFMA executive vice president for public policy and advocacy said. “We think it raises the serious constitutional issues of a government entity overstepping its bounds.”
The plan is being considered by several California municipalities where the housing bust has left a large number of homeowners owing more than their properties’ values.
The concept of applying eminent domain to the housing crisis was originally proposed by the San Francisco-based investment firm Mortgage Resolution Partners and was championed last week by Robert Shiller, Yale economics professor and co-creator of the S&P/Case-Shiller Inex, in a New York Times op-ed. Shiller argues that government seizure of mortgages is the only way to ensure principal reductions in an environment where so many people with financial interest in mortgages are spread throughout the country and unable to take collective action.
Despite Wall Street’s objections independent legal experts seem to agree that the use of eminent domain to serve a valid public purpose has been tested by the courts and meets constitutional muster. [Bloomberg]