Investors invoke law to solve housing crisis A controversial government power most commonly used to force homeowners to sell their property to make room for new roads is now being invoked as a possible solution to the six-year-old housing crisis. Rather than forcing people out of homes, the scheme - floated by a group of mortgage investors advised by Evercore Partners and Westwood Capital - would use compulsory purchase powers known as "eminent domain" to keep them in. Mortgage Resolution Partners, the company behind the plan, has teamed up with local governments in California, where falling house prices have left tens of thousands of residents with negative equity. "We have a huge problem and we feel it would be irresponsible not to explore it," said Greg Devereaux, chief executive of San Bernardino County. He said more than 150,000 residents in the county were in negative equity. If it proceeds, the public-private partnership would use legal powers to forcibly purchase "underwater" mortgages and offer occupants fresh mortgages with reduced debt. If rolled out nationwide, the biggest losers could be the largest US banks, who hold loans on their books at more than their current fair market value. People involved with the plan believe it could be disastrous for big mortgage lenders like Bank of America. But the first target is on loans that have been securitised and sold to private mortgage investors. MRP is initially targeting 5,000 home loans, a potential cost of about $750m, owned in private label securities. MRP is attempting to raise hundreds of millions of dollars from institutional investors, with the money used by local authorities to buy the loans. The new mortgages would be sold and the proceeds divided between the local government and the investors. It comes after the failure of the Obama administration's housing policies to reach targets to alleviate mortgage repayment problems for millions of homeowners. Congressional aides said the MRP plan had been circulated on Capitol Hill recently as people behind the plan look to build support among lawmakers. In California, San Bernardino has set up a joint powers authority with neighbouring cities, an entity that would purchase the mortgages. Mr Devereaux said the plan would be open to public consultation before it was given the green light. The use of the legal powers, which are intensely controversial in the US, has already garnered some local opposition, said Mr Devereaux. Eminent domain, of course, some people don't think should be used under any circumstances including to build roads or sewers or water systems. But the real fight is likely to come from some of the mortgage investors and, particularly, if they are targeted, the banks. The consortium has enlisted legal advice that says the powers can be used. "I don't know if any legal strategy is bulletproof but if any is it's this one," said Robert Hockett, a professor at Cornell University, who has been pushing the use of eminent domain for mortgages for several years and has advised Mortgage Resolution Partners. "Sand-and-sun states [such as California and Florida] are faced by significant blight and losses of the property base and losses to the revenue base in consequence of that and possible retraction of various essential city services," said Mr Hockett. There's a clear public use argument to be made.