Bay Area Watches Richmond’s Plan to Help Homeowners Avoid Foreclosure
Aug 19, 2013
Posted in Housing/Foreclosures
By Tanya Dennis
Grace Martinez, an Organizer for the Alliance of Californians in San Francisco, was excited to learn that the City of Richmond has decided to use the power of eminent domain to help homeowners avoid foreclosure.
“This is a David and Goliath fight and all homeowners want is a slingshot,” she said. “Richmond is using a tactic that is usually used against homeowners to help them level the playing field.
Peggy Hart, Co-Chair of the Home Defender’s League in Oakland, agrees, seeing Richmond’s pathbreaking approach as something other cities can adopt.
“Housing advocates from other cities are watching the outcome as they feel eminent domain could help residents in their cities as well,” says Hart. “Using eminent domain in Oakland would give people, people of color and single income families a second chance to keep their homes, especially old people who are being put out of their homes because they can’t qualify because of their age.”
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.
“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,” said Amy Shur, Alliance of Californians for Community Empowerment (ACCE) campaign director.
Roughly half of all homes in Richmond are underwater and some homeowners owe three or four times what the home is worth. While housing prices are beginning to skyrocket in more affluent Bay Area communities, Richmond remains mired in underwater mortgages.
Mortgage Resolution Partners (MRP) is the investment firm providing funding and support to save residents’ homes. MRP will pay off bondholders 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.
“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,” said Chris Killian, managing director of the Securities and Financial Markets Association, a trade group that represents banks and securities firms.
“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.”
MRP 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 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.