There is a great disturbance in the force.

American Banker-

Wall Street’s political operatives — the American Bankers Association, American Securitization Forum, the Securities Industry and Financial Markets Association, and the Financial Services Roundtable — wrote a panicked letter to the Supervisors of San Bernardino County in California to express “strong objection” to a proposal by a startup mortgage company. The letter conveys the unmistakable threat that Wall Street will sic its lawyers on the county and will “likely be reluctant to provide future funding to borrowers in these areas.”

The proposal is that the county use eminent domain to buy underwater mortgages, almost half the mortgages in the county. The mortgage company, working with the county, would then negotiate new mortgages with the homeowners that they could afford. If the proposal worked as planned, the county would get relief from the foreclosure crisis, the mortgage company would make a profit, and the idea would spread to other counties and towns.

A legal challenge by Wall Street might be expensive to fight, but the arguments are pretty flimsy.

[AMERICAN BANKER]

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