Actor John Cusack attended the hearing, telling the Tribune he was there to support a friend, Kevin McCabe, of Community Partners, which he identified as a "independent ally" of Mortgage Resolution Partners.
Here's the gist: Mortgage Resolution Partners has been on a tour of foreclosure-racked cities, pitching them on a plan: seize underwater properties through eminent domain at fair market value—i.e. less than the value of the mortgage—refinance it through the feds, and let MRP deal with them. Homeowners get lower payments, cities get fewer foreclosures… and MRP makes, you know, money. It's a clever pitch, and though it's legally complex, the business aspect is really simple: MRP takes advantage of the huge difference between bubble-inflated loans and collapsed market values to make money on the difference between the two, provided they can convince governments to get ahold of those mortgages. This San Francisco Chronicle piece explains how MRP could make money on a $300k loan for a now-worth-$200k house, seized for $160k (i.e. the "fair market price").
Cusack is a big fan, enough to promote it to Arianna Huffington:
Lots of people have called for mortgage cramdowns at the national level, but nothing's happening, so MRP has made a business model to the local level that would essentially force cramdowns by wresting the mortgages from the banks that hold them. Economist Robert Shiller, calling for such a program, argues that it's a sensible response to a collective failure by the banking industry:
At the moment, the trouble in our real estate markets and the drag these markets are placing on our entire economy may be understood as a collective action problem. In a nutshell, mortgage lenders need to write down the amounts owed by individual homeowners — that is, let everyone sit down and relax — but the different stakeholders have been unable to reach an agreement, even if it is in their common interest.
In the current real estate market, the relevant group is enormous and complex. It includes those who own first and second mortgages or home equity lines of credit or residential mortgage-backed securities or the various tranches of mortgage collateralized debt obligations or shares in banks and finance companies that in turn own mortgages. These people live all over the world and have no way of communicating with each other, let alone coming to an agreement to give homeowners a break.
Not everyone likes this, particularly 1) people who are creeped out by the idea of using eminent domain to refinance mortgages, given that we tend to accept that eminent domain refers to physical things and 2) the people that hold the loans. The FHFA has signaled that it's concerned about the idea, and Rahm Emanuel has already put the kibosh on it. Yves Smith suggests that there's reason to "beware financiers bearing gifts" and that cities should pay very close attention to the fine print:
[T]he very act of condemning with an intended takeout at a higher price via a Federal government program smells an awful lot like a scheme to defraud. Clearly the ability to refi ad a much higher price than the condemnation price is proof in and of itself that the condemnation price was too low. And the best part? The party whose property is condemned can take the money offered and go fight in court for more. And if he wins, the other side, the municipality, pays his legal fees. The examples contemplate only $25,000 or say $50,000 of “spread” between the condemnation price and the refi amount. $25,000 doesn’t even get you started in litigation. Any level of lawsuits (particularly if the municipalities also have to repay the costs of big ticket lawyers on the other side) will run into the hundreds of thousands of dollars per borrower, pronto.
Any future of mortgage-related eminent domain is unlikely to involve MRP, at least here in Chicago, unless they bring in Jeremy Piven to press the point.