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October 25, 2014

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FAQs about MRP: North Las Vegas to vote on controversial mortgage-refinancing program

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Steve Marcus

A vacant HUD home is shown in North Las Vegas April 2, 2013. A neighbor said that it has been vacant for about two years. (1524 Gaber Court, North Las Vegas)

Updated Wednesday, Sept. 4, 2013 | 9:16 a.m.

Backers of a controversial proposal that would allow eminent domain to be used to help refinance underwater home mortgages scored a small victory in June when the North Las Vegas City Council voted to allow the company behind the plan, Mortgage Resolution Partners, to begin surveying the local housing market.

But much has changed in the intervening months since the council expressed its tentative approval, meaning MRP could face a tough sell when it reports back to the council during its Wednesday night meeting.

Most importantly, two council members who supported MRP in June, former mayor Shari Buck and Robert Eliason, have been replaced by John Lee and Isaac Barron respectively.

City management has also seen a shake-up after the recent resignations of city manager Tim Hacker and city attorney Jeff Barr, two top staffers who had worked extensively on the MRP proposal.

Further complicating matters are legal challenges that have been lodged against MRP in California and Nevada, plus a stern warning from federal housing officials in August that lenders Fannie Mae and Freddie Mac might “limit, restrict or cease business activities” in any city that uses eminent domain to restructure mortgages.

Those changes haven’t discouraged MRP’s Nevada representatives, who are prepared to make their arguments Wednesday armed with a 14-page report they’ve compiled over the past two months.

Before the council makes its vote, here’s what you need to know about MRP and its proposal for North Las Vegas:

What is Mortgage Resolution Partners?

The California-based company describes itself as a “community advisory firm working to stabilize local housing markets.” The company has recruited representatives in various states to pitch the program to local governments.

In Nevada, that delegation includes Las Vegas attorney Byron Georgiou, developer Michael Saltman and Daniel Greenspun, a member of the family that owns the Las Vegas Sun.

What does their proposal entail?

MRP’s plan targets a specific subset of underwater home mortgages held in private label security-backed trusts, each of which can have thousands of investors. There are currently 3,920 of these types of loans in North Las Vegas that would be eligible for the program, according to MRP’s report to the city.

If the company receives the council’s approval, it would begin contacting these homeowners and the banks that service the loans in an attempt to acquire and then refinance the mortgage.

For example, a house carrying a $300,000 mortgage but with a market value of only $200,000 would be bought by the city using private funding for less than its face value, in this case $150,000.

The below-face value payment would provide cash to any previous mortgage owners and save them any potential losses from the property going into foreclosure.

The city-owned mortgage would then be refinanced with a higher loan, in this case $190,000, leaving the homeowner with a lower principal owed and some equity in the house.

The $40,000 spread between the purchase price and the new loan price would be used to cover costs and to pay back the city and the investors who provided the initial capital. The city would receive a fee of about 5 percent of the new loan value, Mortgage Resolution Partners investors also would receive a return on their investment. Additionally, Mortgage Resolution Partners would receive a flat fee of $4,500 per transaction.

Where does eminent domain fit in?

Although MRP’s backers have emphasized that they’d like the program to be entirely voluntary, the city may have to lend its powers of eminent domain to facilitate the transaction.

Because the types of loans targeted by MRP are typically held in pools containing thousands of mortgages and investors with a complex ownership structure, getting each party to sign off on a sale of a single mortgage would be nearly impossible.

The city’s eminent domain powers would be used to pluck individual notes out of the securitized pools, allowing MRP to refinance only the loans ideal for its program.

This has raised concerns that the city’s powers could be used to force unwilling mortgage-owners to sell their interests at a loss.

Why is it needed?

Georgiou and other MRP backers have argued that existing federal and state programs to aid distressed homeowners haven’t done enough for people with mortgages packaged in private label securities.

These loans are at an especially high rate of default, Georgiou said, which could lead to a rash of costly foreclosures.

He said the program would allow homeowners to keep their houses with a significantly reduced principal, while stabilizing the broader housing market.

“This is a way to readjust debt, something that is exceedingly common in America,” he said. “The entire purpose of program is to keep people in their homes and reduce the principal amount they have outstanding."

What other cities have signed on?

North Las Vegas was the sixth and largest city to partner with MRP when it approved the advisory agreement in June, joining California cities Richmond, La Puente, El Monte, San Joaquin and Orange Cove.

So far, only Richmond has proceeded with starting the program, sending out letters to servicers and homeowners offering to purchase the underwater mortgages.

That move triggered a lawsuit from several banks and investment firms. The lawsuit is scheduled for a hearing next week.

Who’s supporting the plan?

The most vocal advocates for MRP have been the company’s Nevada representatives, who have corralled a stable of experts to testify on the program’s legal soundness.

Although it hasn’t found widespread community backing, several local unions have indicated they support any plan to help struggling homeowners.

Perhaps the strongest support for the program has come from homeowners themselves, dozens of whom have shared personal stories at various public meetings about their struggles attempting to refinance their underwater mortgages through existing channels.

Who’s opposing the plan?

A wide coalition of bankers, financial institutions and real estate professionals have lined up in opposition to MRP’s proposal.

The strongest opposition locally has come from the Greater Las Vegas Association of Realtors, which has helped fund a series of foreboding mailers and TV and radio advertisements that make pointed claims about MRP.

The advertisements have compared the company to vultures, describing the plan as a “speculative real estate scheme” that would use “eminent domain to seize homes that are current on their mortgages.”

One of the main concerns, GLVAR government affairs director Sean Fellows says, is that MRP’s plan will destabilize the local housing market and scare off lenders from writing new mortgages.

“This would dry up mortgage lending in Southern Nevada,” he said. “These homeowners who will lose their notes by eminent domain, there’s no guarantee they’ll be able to get a new mortgage that alone should cause some pause.”

With the market recovering and home values increasing, Fellows said the need for drastic action like the kind proposed by MRP is waning.

“There are people that are still underwater, but improvement is coming,” he said, adding that more than a dozen programs already exist to help struggling homeowners without putting profits into the pockets of private investors.

What about the legal challenges?

Two federal lawsuits, one in California regarding the actions of Richmond’s city council and a second in Nevada targeting North Las Vegas, have been filed in an attempt to stop MRP’s plan.

A hearing for a preliminary injunction in the California suit, filed by Wells Fargo and Bank of New York, is scheduled for Sept. 13.

The North Las Vegas case, filed by citizen Gregory Smith, is still in prehearing phases, meaning a decision on a preliminary injunction won’t be made until at least October.

MRP has promised cities that it will cover any and all legal costs stemming from lawsuits challenging their programs.

North Las Vegas sought two outside opinions on the legality of MRP's proposal, but the city has declined to share those findings with the public, citing attorney-client privilege.

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