Concern over seizing mortgages

Wall Street’s largest lobbying group is objecting to the use of eminent domain by municipalities to seize mortgages packaged into bonds so the loans can be shrunk to aid homeowners who owe more than their properties’ values.

San Bernardino County in California, where about 150,000 homes are underwater, is exploring the strategy along with the cities of Fontana and Ontario there. Robert Shiller, an economics professor at Yale University and co-creator of the S&P/Case-Shiller property-value indexes, supported the idea.

Both the investment firm and bank members of the Securities Industry and Financial Markets Association have “very serious concerns” based on an agreement approved last week by San Bernardino commissioners granting the authority to study and create such a program, said Ken Bentsen, executive vice president for public policy and advocacy at the trade group. By using eminent-domain powers, municipalities can forcefully buy private property at prices deemed to be fair if doing so serves a public purpose.