San Bernardino County and the cities of Fontana and Ontario formed a regional group in April that may use eminent domain in a new way.
Eminent domain is an often-controversial legal power used to seize properties for the public good, typically to secure right-of-way from property owners asking for more than market value for land wanted for civic improvement projects.
The joint-powers authority may use eminent domain to buy up "underwater" mortgages and replace them with more affordable new mortgages.
The move would be intended to head off foreclosures in a region where more than half of homes are either worth less than the mortgages owed on them or are being foreclosed upon.
"I like the ability for local government and municipalities to impact their local communities in a positive way," Newsom said Tuesday, during a visit to Cal Poly Pomona.
The lieutenant governor was at the university for a summit that brought together cyber- security companies and educators.
On Sept. 10, Newsom sent a letter to U.S. Attorney General Eric Holder, calling on the Department of Justice to investigate threats of retaliatory action by the mortgage industry.
The letter cited a June 28 trading report by a securities analyst that outlined ways investors and lenders could pressure groups thinking of using eminent domain on underwater mortgages to change their mind, including refusing to insure loans in the affected areas.
"I don't like when folks come in and bully others," he said, calling the implicit threats from Wall Street investors "redlining," referring to the practice of not offering services, or offering them at a higher rate, to certain areas based on factors such as race.
"I find that patently offensive," Newsom said. "This is not cute. It's not funny. It's not an intellectual exercise from my perspective."
Two million California homes have been foreclosed on, he said, affecting many more Californians and stalling the state's economy.
"You're not going to unlock the economy of California until you unlock" consumer spending, Newsom said. Consumer spending is suppressed by homeowners doing everything they can to keep their homes.
And in San Bernardino County, which was one of the hardest-hit areas in the nation when the housing bubble burst, local officials need the opportunity to try every legal means of turning things around.
"I'm a pro-business guy," Newsom said.
As he said in the conclusion of his Sept. 10 letter, Newsom said he isn't convinced this use of eminent domain will work, but he thinks Wall Street needs to let local governments try.
"I haven't concluded this is the right thing (to do), but my gosh, let them explore this," he said Tuesday. "I was very proud of San Bernardino, taking the political risk."
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