Banks are sick of the Inland Empire's nonperforming mortgages, and Wall Street can't afford them on its books.
But those toxic loans are looking lucrative to investors willing to accept a huge risk.
Government and business leaders from San Bernardino and Riverside counties decided at a Wednesday meeting to keep pursuing a proposal that would open the door for Los Angeles-area investors and Inland Empire cities to buy up thousands of troubled mortgages behind the region's economic problems.
At stake: every aspect of the Inland Empire's economy.
The region's hammered real-estate market could spiral downward even further if the concept doesn't come together, which could slide the local economy into a deeper recession than expected, proponents say.
"It could devastate our economy for the next decade," said Steve PonTell, president of Upland-based La Jolla Institute, a nonprofit economic research organization.
But the proposal's advocates are also looking out for themselves. If their plan doesn't work, and if home prices fall even more, they might see millions of dollars in losses.
After the federal government takes collapsing mortgage-backed securities off the hands of Wall Street - just like it did during the 1980s savings-and-loan crisis - the Treasury Department is poised to repackage that debt and sell it to investment firms across the nation.
That worries local business owners and politicians who argue
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that nationwide investors with no stake in the Inland Empire's economy are bound to turn local properties into rentals, which would make real-estate values drop further.
They're proposing a public- private partnership between cities and investors, which would buy distressed Inland Empire mortgages and shut out investors from outside the Los Angeles region.
Real-estate developers, auto- dealership owners and some other entrepreneurs across the two-county region are tentatively on board with the concept.
But envisioning the dream and realizing it are two different things.
Right now, lobbyists and congressional representatives are imploring Treasury Secretary Henry Paulson to add specifics into recent bailout legislation that would let an Inland Empire public-private partnership purchase local mortgages.
"Wall Street wants to make this so complicated because they want control over this," said Lance Larson, legislative director for San Bernardino County. "They want to keep (local assets) on the securities side."
San Bernardino and Riverside counties ratified a resolution supporting the concept in early October. Nothing is set in stone, but proponents say they might call it the Inland Empire Asset Value Recovery Corporation.
Larson said the Inland Empire has 100,000 homes in default or foreclosure - a $30 billion problem that doesn't include thousands of previous and future foreclosures.
"We're also trying to increase demand," Larson said about drawing out buyers and propping up the region's devastated real-estate values.
Montclair Councilman Bill Ruh, a strong advocate for affordable housing, questions whether a public-private partnership is a good thing for the region.
He thinks it might usher in an artificial price floor on real-estate values, which would keep local blue-collar workers from finally being able to afford the American dream.
"When homes were running up in price, we never said, `They can only go this high' - so why stop prices from dropping?" Ruh said. "What's wrong if a home's price drops low enough for a janitor to own one? There's nothing wrong with that.
"If a janitor who makes $35,000 a year can finally afford a home at Sierra Lakes (in Fontana), so be it," Ruh added. "If a retail sales clerk who works at Banana Republic can finally afford a home, so be it. It seems that cities are more afraid of rentals than actually dealing with the problem."
