The possible use of eminent domain to seize “underwater” residential mortgages was first conceived in 2012 during the recession, as a potential way to assist homeowners who had outstanding mortgages exceeding the value of their respective homes. The movement was initiated by venture capitalists from San Francisco, who hoped to convince local officials in southern California to use the governmental power of eminent domain to seize control of private residential mortgage-backed securities, with the intent of cutting the principal balances of underwater borrowers.
Under the plan, the local government would take title to the loans, without taking title to the actual home, and pay the original mortgage owner the “fair value” with the money provided by institutional investors. The loan would then be restructured or replaced to reduce homeowners’ monthly mortgage payments, with hedge funds, pension funds and other institutional investors buying the new loans for a fee charged by the venture capitalists.
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