Tapping the power of eminent domain to repair underwater mortgages could generate investor returns of up to 30% and billions of dollars in fees for bankers behind the proposal, according to people with knowledge of the plan.

The use of eminent domain to seize and restructure mortgages is an idea that has enraged bondholders who worry they will be forced to sell mortgages from their securities to municipal governments at a steep discount. But the proposal, being pitched to municipalities by advisory firm Mortgage Resolution Partners, has piqued the interest of San Bernardino County and two other California municipalities where home-value declines of 50% or more have crippled local economies.

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