* Lt. Governor Gavin Newsom sends letter to Holder,
* Eminent domain considered as step in restructuring
* Newsom says investors try to prevent use of eminent domain
By Katya Wachtel
NEW YORK, Sept 10 California Lieutenant Governor
Gavin Newsom says he wants the U.S Department of Justice to
investigate "threats" against local communities considering
using eminent domain to seize and restructure poorly performing
mortgages to benefit cash-strapped homeowners.
Newsom sent a letter on Monday to U.S. Attorney General Eric
Holder asking federal prosecutors to investigate any attempts by
Wall Street investors and government agencies to "boycott"
California communities that are considering such moves.
"I am most disturbed by threats leveled by the mortgage
industry and some in the federal government who have coercively
urged local governments to reject consideration" of eminent
domain," he wrote in a letter, a copy of which was provided to
Newsom, a Democrat who was previously mayor of San
Francisco, warned the influential Securities Industry and
Financial Markets Association in July to "cease making threats
to the local officials of San Bernardino County" over the
proposed plan to seize underwater mortgages from private
Some towns in San Bernardino County, which is located east
of Los Angeles, have set up a joint authority that is looking
into the idea of using eminent domain to forcibly purchase
distressed mortgages. Rather than evict homeowners through
foreclosure, the public-private entity would offer residents new
mortgages with reduced debts.
Newsom said in the letter on Monday that while he is not
endorsing the use of eminent domain at this time, he wants
communities in California to be able to "explore every option"
for solving their mortgage burdens "without fear of illegal
reprisal by the mortgage industry or federal government
SIFMA and other investment trade groups say such use of
eminent domain is unconstitutional and could scare away future
SIFMA officials were not immediately available for comment.
A Justice Department spokeswoman did not respond to an email
Governments typically use eminent domain to seize properties
to build highways and other public projects. The proposal to use
it to help distressed homeowners has already rankled some on
Wall Street who invest in mortgage-backed securities and the
real estate market.
In his letter, Newsom says a "major" New York-based hedge
fund threatened a company that was involved in a municipal
program to purchase mortgage loans by using eminent domain. In
an email that was copied to 21 other investment firms, the
unnamed hedge fund manager wrote: "This move to pick the pockets
of investors in the mortgage market will have far-reaching
implications on your business."