RICHMOND (KCBS) – Richmond city leaders were moving ahead with a plan to head off the foreclosure crisis, a plan that is not without controversy.
The city has offered to buy more than 600 underwater mortgages at below the homes’ current value.
“If they are unwilling to negotiate a sale of the loans, which we want them to do, then we will consider using eminent domain as another option topurchase these loans at fair market value,” said Richmond Mayor Gayle McLaughlin.
Is eminent domain coming to New York City?
A group of New York City council members are calling for the use of a controversial plan to prevent foreclosures in the city’s five boroughs.
Council members Jumaane Williams, Daneek Miller, Donovan Richards, and Mark Levine have joined with theNew York Communities for Change and the Mutual Housing Association of New York to push for the city to use eminent domain to aid underwater borrowers.
In a study released Wednesday by the four council members, the New York Communities for Change and the Mutual Housing Association of New York, they report that there are more than 60,000 homeowners “in crisis” in the city. Those 60,000 underwater mortgages make up nearly 12% of the total mortgages in NYC.
BREAKING NEWS: Newark Votes, Approves Use of Eminent Domain to Fight Foreclosures–First Domino Falls
Newark, New Jersey has become the first city in the country to officially approve a controversial plan that uses eminent domain to fight foreclosures and neighborhood blight.
Newark’s new mayor, Ras Baraka, introduced the resolution and the Newark Municipal Council, which passed it unanimously, according to a press release issued today by New Jersey Communities United (unitednj.org), which describes itself as a progressive grassroots community organization committed to building power for low and moderate income people, predominantly in Newark.
According to the release…
“Newark Council Unanimously Approves Resolution Supporting Local Principal Reduction Program for Families Facing Foreclosure
Mayor-Elect Ras Baraka Leading Fight Against Foreclosure Crisis in Newark”
The program would allow homeowners trapped in certain type of mortgage, known as a Private Label Security or PLS Loans, to voluntarily participate in a program where the City purchases these mortgages from investors and repackages them at terms homeowners can afford. For most of the estimated 1,200 homeowners with these types of loans in Newark, the policy would save them from losing their homes to foreclosure.
Mayor-Elect Ras Baraka…
“Newark families have been absolutely devastated by the foreclosure crisis. Unless we take decisive action now, the situation will only get worse. As Mayor of Newark, I will aggressively move forward to implement the resolution passed by the Council. It will send a clear message that we will no longer accept the predatory lending and questionable foreclosure practices by banks. More importantly this policy will keep families in their homes and begin to reverse the blight created by vacant and abandoned houses that have already been lost to bank foreclosures.”
Mortgage investors’ inevitable constitutional challenge to eminent domain
On Tuesday, the small California city of Richmond announced that it has sent notices to 624 homeowners whose houses are worth less than they owe on their mortgages. Richmond said it intended to buy their mortgages for 80 percent of the fair value of their houses and to help them refinance with new, more affordable mortgages. In the event homeowners don’t want to participate in the program, Richmond said it would use its power of eminent domain to seize the mortgage loans.
Yes, the much-discussed eminent domain mortgage seizure idea is finally being realized, despite vehement opposition from just about the entire financial industry. It’s been more than a year since a San Francisco outfit called Mortgage Resolution Partners first floated the concept of partnering with troubled cities to reduce foreclosures by using the city’s eminent domain power to seize mortgages of underwater homeowners in the name of the public good. (MRP’s role is to provide cities with capital for the eminent domain purchases, issue modified mortgages to homeowners and then bundle and resell the new loans as mortgage-backed securities.) Proponents have pitched the plan as a public boon, a way to keep homeowners in their houses and preserve neighborhoods that would otherwise be blighted with foreclosures. The concept was alluring enough that over the last year, officials in several California cities, as well as North Las Vegas and even Chicago, have toyed with using eminent domain to stave off foreclosures.
Before Richmond, however, all of the cities that considered the scheme have been dissuaded, in part by concerted financial industry opposition. Investors in mortgage-backed securities hate the eminent domain idea. No mystery there: The vast majority of the mortgage loans that cities want to seize belong to MBS trusts. When cities talk about buying mortgages for 80 percent of the current value of a house, they’re not accounting for the value of the seized loan to the MBS trust that actually owns the mortgage, especially because these eminent domain proposals call for the takeover of performing loans, not mortgages on which homeowners have already defaulted. (More than 440 of the homeowners that received notices from the city of Richmond are up-to-date on their mortgage payments.) So as Timothy Cameron, the head of the Asset Management Group of the Securities Industry and Financial Markets Association, explained to me on Thursday, MBS investors believe that they’re twice injured by mortgage seizures under eminent domain plans. First, they’re shortchanged on the value of the revenue stream from a performing loan; and second, they’re damages by the decline in the value of their mortgage-backed securities, which are worth less when performing loans are terminated.
California Lt. Gov. Gavin Newsom is asking the U.S. Department of Justice to investigate whether the finance industry has illegally colluded in opposing a proposal to acquire mortgages though eminent domain in San Bernardino County.
In letter Monday, Sept. 10, Newsom urged U.S. Attorney General Eric Holder to have the anti-trust division look into whether the finance and mortgage industry may be seeking to retaliate against the county by making it harder for residents to get approval for loans.