The little city of Richmond, California has taken steps to do what other cities have so far only dreamed of: They’ve taken on the mortgage industry to protect its residents. Other municipalities have considered using the same eminent domain option as Richmond, but have backed off in the face of threats and bullying by the corporations and trusts that hold their citizens’ mortgages.
In an innovative step, Richmond is using eminent domain–a weapon that’s usually wielded to build sports stadiums and highways in low-income neighborhoods–to buy underwater mortgages and refinance them to keep residents in their homes.? Richmond is the kind of community–low-income, with a large minority demographic–that is typically targeted for predatory lending practices. Many residents have ended up with mortgages that are three or four times the current worth of their homes.
Last month, the city sent letters to lenders and mortgage servicers, offering to buy 626 underwater mortgages at the current fair market value. If the companies refuse, the city will use eminent domain to seize the mortgages. Refinancing will then be offered to homeowners via a contract the city has with Mortgage Resolution Partners, a private investment firm in San Francisco. After refinancing for a price that’s close to market value, residents will suddenly have a small amount of equity in their homes rather than being tens of thousands of dollars underwater–plus, the city can stop a persistent hollowing out of its population.
On Wednesday, mortgage-bond trustees from Wall Street companies filed a lawsuit in federal court against the city of Richmond to try and halt the process. In a laughable statement, a lawyer for some of the mortgage investors, John Ertman, wrote in an email:
Mortgage Resolution Partners (MRP) is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit.
Apparently, brazen schemes to abuse government powers for profit is limited to Wall Street–in Ertman’s not-so-humble opinion. The Federal Housing Finance Agency (FHFA)–a federal regulatory agency–immediately chimed in on the side of Wall Street, saying it might insist that Fannie Mae (FNMA), Freddie Mac and the Federal Home Loan Banks ?limit, restrict or cease business activities within the jurisdiction of any state or local authority employing eminent domain to restructure mortgage loan contracts.?
The threat that mortgage companies would either prohibit the financing of homes or raise the interest rate to prohibitive levels in communities that use eminent domain has so far caused other communities to back off of similar plans.? However, Richmond Mayor Gayle McLaughlin will not be dissuaded from this path. After the companies’ lawsuit was filed, she said:
We feel strongly that we’re on legal ground. We’re not afraid of going into the courtroom. We believe our legal reasoning will prevail.
While the Wall Street corporations are trying to argue that this use of eminent domain is not for the good of the whole community, but for the gain of specific individuals, the benefits to the community are clear.? Among other things, stopping foreclosures would allow property values to rise and would stop a drain of the tax base.
John Vlahoplus, an officer for MRP, addressed the threat presented by the FHFA, saying:
The FHFA was created to be independent of the mortgage industry that it regulates. But instead it has been in bed with the mortgage industry for over a year to oppose this solution to the mortgage crisis.
There are other local governments which continue to evaluate the use of eminent domain as an option, such as North Las Vegas, Nevada, and El Monte, California. But as Amy Schur, of the national movement Home Defenders League, said:
Our local electeds can’t do this alone, they need the backup support from their constituents. That’s what’s been the game changer in this effort.
If it only took one David to fell the original Goliath, surely millions of constituents can fell the opposition of the current Goliath–otherwise known as Wall Street.
Photo from ABC.Com.
edited/published by eap