Homeowners and local officials in Richmond are considering a radical idea to keep people facing foreclosure in their homes. Eminent Domain, traditionally used by cities and states to seize property from homeowners for the “common good” to build roads and shopping malls, is now being considered to seize underwater mortgages from lenders, reduce the mortgages to current market value and resell them back to the homeowner. Richmond could become the first city in the nation to use eminent domain to bail out distressed homeowners.
Saturday, over 100 residents attended a meeting at Nevin Community Center to hear presentations by project leaders from the Alliance of Californians for Community Empowerment (ACCE); Mortgage Resolution Partners (MRP), the investment firm providing funding and support to save residents’ homes; and Councilwoman Jovanka Beckles and Mayor Gale McLaughlin who are supporting the idea and willing to take on Wall Street banks who refused to modify loans and work with homeowners.
Amy Shur, ACCE’s campaign director states that “The banks have sold these loans to other investors and the people who peddled these loans no longer care if the loan succeeds. They don’t lose when the homeowner loses, and often loan servicers actually do better when the homeowner is foreclosed upon.”
Roughly half of all homes in Richmond are underwater and some homeowners owe three or four times what the home is worth, and while housing prices are beginning to skyrocket in more affluent Bay Area communities, Richmond remains mired in underwater mortgages. Last year ACCE reported that 900 Richmond families lost their homes last year while 4,600 remain $700 million underwater on their mortgages.
MRP will pay off bond holders close to the current value, and then sell the new the new mortgage to the homeowner less than the previous amount. The city has sent 32 banks and other mortgage holders an offer to buy 624 mortgages. If the offers are denied the letter indicates that Richmond may use the power of eminent domain, condemn the mortgages, seize them, and pay court-determined fair market value. City leaders indicate that the purpose is to stabilize the community and prevent foreclosures.
Banks and investors are vehemently opposed to the idea and Chris Killian, managing director of the Securities and Financial Markets Association, a trade group that represents banks and securities firms says that “We think it is unconstitutional, illegal and very bad policy. Mortgage lending is a business, and lenders and mortgage investors have to say what kind of return they want and how much risk they can tolerate. That’s just the way markets work.”
Wells Fargo, the largest mortgage holder in Richmond release a statement: “We believe this approach will harm mortgage investors, the housing market, and the communities and borrowers that its proponents claim they would be helping.”
Mortgage Resolution Partners chairman Steven Gluckstern said, “In Richmond, I see political and community leaders courageous enough to wage this battle and make no mistake, it’s going to be a battle.” MRP who is facilitating the program will offer Richmond the technical assistance, financial backing including all legal costs. In return, the for-profit firm would receive a flat fee of $4,500 per mortgage.