About half of all Arizona mortgages are under water, meaning owners owe more than the property is worth. This proposal was aimed at helping those who continue to make payments rather than simply walk away. It is a bit complex, involving the state using its power of eminent domain to acquire the property, paying the bank the current market value with money from investors who buy state bonds, and giving the lender a no-interest promissory note for the balance. That buys the homeowner some time for the market to recover. But Jim Lundy of the Arizona Bankers Association objected to anything to give lenders even one cent less than they are owed.
"This is a proposed solution that would use the police power of the state to cram down millions of mortgages on hundreds of lenders arbitrarily," Lundy said.
But Phoenix Democrat Debbie McCune Davis said that's better than the current lose-lose situation when homeowners cannot keep up the payments and the bank forecloses, selling the property for less than the balance of the mortgage.
"The homeowner loses their home and they lose their credit. The bank loses money. And the home ends up in the hands of an investor. Is anybody winning?" McCune Davis asked.
In the end there were not enough votes for the plan and it died.