Press Release

Ripeness Decision and Transcript

Printer-Friendly Version

You may find a copy of the decision on the ripeness issue and the related transcript here.


FOR IMMEDIATE RELEASE 

August 29, 2013
Contact Email: ropespress@gloverparkgroup.com

New Filings Reinforce the Need to Stop Eminent Domain Mortgage Seizure Scheme in Richmond, CA

Materials illustrate the damage the scheme would inflict on millions of savers and retirees and the Richmond and U.S. housing markets

San Francisco, CA – Important new documents were filed today in the lawsuit to prevent alternative investment firm Mortgage Resolution Partners (MRP) from proceeding with the City of Richmond, California to seize mortgage loans through the use of eminent domain. 

Today’s filings were made in direct response to MRP’s false claims that this issue is not sufficiently ripe for the Court’s consideration.  The documents show that the actions of MRP and Richmond are well-underway and put every-day savers at risk of suffering irreparable harm.  

“The evidence – including MRP and Richmond’s own statements, emails and memoranda – illustrate that this case is very real, and very ripe.  MRP already has taken substantial steps in implementing its loan seizure scheme in accordance with a pre-determined plan – it has targeted specific loans, made offers to acquire those loans under threat of eminent domain seizure, and is now preparing to effectuate such seizures by initiating state court condemnation proceedings,” said John Ertman, Partner at Ropes & Gray LLP on behalf of the directing certificateholder group. “MRP and Richmond have flatly rejected all requests to suspend activity until the Court reviews the significant constitutional challenges.  The law is well-settled that injunctive relief can be considered before millions of savers suffer irreparable harm.”  

If successful, MRP’s loan seizure program would remove predominantly-performing mortgage loans from residential mortgage-backed securities (RMBS) trusts, forcing a loss on millions of savers and retirees nationwide.   

“MRP is renting local government power to take money out of the pockets of savers and retirees across the U.S. and line their own pockets; they are disingenuously trying to avoid the Court’s consideration of the illegality of the seizure scheme,” Ertman added. 

 Today’s filings further prove: 

(1) that the majority of the loans targeted by MRP are not in danger of default

(2) if implemented, the program forces real losses on millions of savers and retirees, and

(3) the City of Richmond’s housing market will suffer from lower home values and higher lending rates.

Positive equity, not in risk of default 

Contrary to MRP claims, the Program primarily targets performing loans, many of which are not “under water.”  From the Reply Declaration of Phillip R. Burnaman, II:

“Most strikingly, current data regarding the Target Loans indicates that many are not underwater at all.  Indeed, while the decline in home prices from their peak in 2005 has created a substantial number of mortgage loans with negative homeowner equity, I calculate that roughly 31% of the Target Loans have loan-to-value (“LTVs”) below 100%, indicating that the homeowners are not “underwater,” but have substantive equity in their homes...” 

“In addition, 43% of the Target Loans are underwater but are current on their payments – i.e., they are performing loans, and based on current house price trends, I would estimate that 45% of this group will reach a positive equity position or be “above water” over the next two years.”  See Exhibit A here

“Contrary to the stated mission of the Seizure Program to rescue “underwater” borrowers, there is no apparent basis to include these loans in the Program to prevent them from defaulting, even allowing for the Defendants’ incorrect assumption that underwater loans are necessarily subject to a high default rate.”   

Mr. Burnaman’s Reply Declaration also speaks directly to the threat posed by the scheme:  

“…the eminent domain seizure of mortgage loans by the City of Richmond will cause a serious and immediate threat to the U.S. mortgage market… The Seizure Program will cause injury to PLS trusts and consequently their certificateholders, who include individual savers and investors in pension and retirement plans.  The injury to citizens of Richmond and the State of California who are employed in the housing and mortgage industry is equally significant and is potentially severe.  The benefits of the Seizure Program would be realized by a few and the costs would be borne by many.”

The Richmond seizure program violates multiple provisions of the U.S. Constitution, the California Constitution and California statues:

  1. The program targets for seizure mortgage loans for a private, rather than public, use, in violation of the Takings Clause of the U.S. Constitution, the California Constitution and California eminent domain law.
  2. The program illegally reaches out beyond Richmond’s geographic borders to seize mortgage loans located outside of Richmond, in violation of the due process requirements of the U.S. Constitution, the California Constitution and California eminent domain law.
  3. The program seeks to regulate interstate commerce, in violation of the Commerce Clause of the U.S. Constitution, by rewriting the mortgage loan contracts between local residents and out-of-Richmond and out-of-state creditors, with the resulting harm to the national mortgage and housing industry’s vastly outweighing the minimal purported local benefits of the program.
  4. The program nullifies the debts of local citizens at the expense of out-of-state creditors without any legitimate public purpose, in violation of the Contract Clause of the U.S. Constitution.

Plaintiffs’ Reply Memorandum in Further Support of Motion For Preliminary Injunction

Reply Declaration of Phillip R. Burnaman, II

Declaration of Douglas G. Duncan

Plaintiffs’ Memorandum in Opposition to Defendants’ Motion to Dismiss
 


FOR IMMEDIATE RELEASE
August 7, 2013
Contact Email: ropespress@gloverparkgroup.com

Injunction Action Filed in California to Protect American Retirees and Savers from Eminent Domain Mortgage Seizure Scheme

SAN FRANCISCO, CA – Institutions that manage retirement assets and savings for tens of millions of American workers and retirees are seeking to stop an alternative investment fund from exploiting, for its own profit, government resources to seize and restructure mortgage loan contracts at the expense of private citizens.  Specifically, this group of institutions has directed residential mortgage-backed securities trustees to file a legal complaint requesting an injunction today in the United States District Court for the Northern District of California to preemptively stop this action being taken by Mortgage Resolution Partners (MRP). 

“Mortgage Resolution Partners is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit,” said John Ertman, Partner at Ropes & Gray LLP on behalf of the group of institutional investors that directed the legal action.  “Mortgage Resolution Partners has led the City of Richmond, CA into an unprecedented use of eminent domain seizure that is unconstitutional, harmful to homeowners and taxpayers, and unfair to millions of individual savers and investors.  This unconstitutional application of eminent domain will be devastating for mortgage finance both public and private.  It will completely undermine the willingness for private capital to return to the mortgage markets.”   

Richmond, with the financial backing of MRP, plans to seize these mortgage loan contracts from the residential mortgage-backed securities trusts, in which millions of pensioners, retirees and other savers are investors.   Among the likely consequences of this scheme would be less access to credit for borrowers in Richmond, in the form of higher down payment requirements and higher interest rates, as well as severely reduced capital allocation to mortgage markets.

The purpose of the lawsuit is to protect retirees and savers from an unlawful and unconstitutional seizure of private property and prevent severe damage to the country’s home mortgage market. Plaintiffs in the case are trustees for the residential mortgage-backed securities trusts who own these mortgage loan contracts for the benefit of investors in the trusts.  The trustees are acting at the direction of institutions including asset managers who, as fiduciaries, are representing and protecting the interests of tens of millions of American savers and retirees that ultimately own these assets.

For more information, including a copy of the complaint, click here. For a copy of the motion for preliminary injunction, click here.

More about the proposal: 

  • Pensioners, savers and retirees are forced to bear 100% of the cost, while MRP will reap a significant profit.
  • In an explicit overstep of government authority, the MRP plan proposes that Richmond use eminent domain to seize performing mortgage loans from the residential mortgage-backed securities trusts at prices equivalent to approximately 80% or less than the current market value of the underlying home (rather than the outstanding amount of the loan).  
  • Unlike federal mortgage assistance programs that help borrowers who cannot afford to pay their loans, the MRP plan predominantly targets underwater mortgage loans held by borrowers who are current on their payments and have good credit ratings.   
  • Critical to the MRP plan is their ability to refinance the borrower into taxpayer-guaranteed loans priced at approximately 95% of the underlying home value.  
  • The difference between the discounted seizure price and the 95% refinancing prices represents MRP’s profit.  
  • According to MRP’s own documentation, their investors will receive $12,970 pure profit on a typical $200,000 seized loan. 

Added Ertman: “Under this scheme, 100 percent of the cost will be borne by pensioners, savers and in some cases, the taxpayers who currently own these mortgage backed securities while 100 percent of the profit will be split between MRP and the City of Richmond.” 

Legal Background

The Richmond seizure program violates multiple provisions of the U.S. Constitution, the California Constitution and California statues:

  1. The program targets for seizure mortgage loans for a purely private, rather than public, use, in violation of the Takings Clause of the U.S. Constitution, the California Constitution and California eminent domain law.
  2. The program illegally reaches out beyond Richmond’s geographic borders to seize mortgage loans located outside of Richmond, in violation of the due process requirements of the U.S. Constitution, the California Constitution and California eminent domain law.
  3. The program seeks to regulate interstate commerce, in violation of the Commerce Clause of the U.S. Constitution, by rewriting the mortgage loan contracts between local residents and out-of-Richmond and out-of-state creditors, with the resulting harm to the national mortgage and housing industry’s vastly outweighing the minimal purported local benefits of the program.
  4. The program nullifies the debts of local citizens at the expense of out-of-state creditors without any legitimate public purpose, in violation of the Contract Clause of the U.S. Constitution. 

Facts about the Eminent Domain Case 

FHFA Statement on Eminent Domain

 

Printer-Friendly Version