Monday, September 30, 2013
Richmond City's "Eminent Domain for the People" program is making Wall Street banks furious
Despite humanitarian solutions, meaningless debate forces homelessness to persist.
A common-sense solution to saving people's lives and preventing homelessness is to open up vacant homes which have been left so by banks and land-speculators, to house families and workers immediately (with compensation to the vacant property owner), and to simply find ways to KEEP PEOPLE IN THEIR OWN HOMES, like the program being discussed in Richmond. Unfortunately, advocates against this solution will only focus on creating expensive shelters using public money which is otherwise not there, and so the advocates against positive solutions to squatting and property vacancy will claim there is no money for new shelters, and end the debate with that meaningless point, knowingly ignoring the families and workers who live with no shelter, real people who suffer because of the bankrupt logic of protecting profits above people's needs!
Giving light to this so-called "debate" are two articles reproduced below, the first about the People's program in Richmond, the next about the money-draining solution being discussed in San Francisco.
"Richmond’s controversial housing plan takes step forward"
2013-12-18 by Nancy DeVille and Kevin N. Hume from "Richmond Confidential" [http://richmondconfidential.org/2013/12/18/richmonds-controversial-housing-plan-takes-step-forward/]:
Richmond moved one step closer to implementing its eminent domain plan Tuesday night by tightening guidelines for the program, which aims to save struggling homeowners from foreclosure.
The approval of last night’s resolution for the program, called Richmond CARES, gives priority to neighborhoods hardest hit by the housing crisis and qualifies only those homeowners who have balances below the conforming loan limit. The council also instructed city staff to reach out to banks in search of alternative principal reduction strategies and to seek partner cities to form a Joint Powers Authority. While the agenda item was approved 4-2, the city’s eminent domain plan needs the council’s supermajority for final approval.
“It is the community that is driving this program and the homeowners that have so much to lose,” said Mayor Gayle McLaughlin, the item’s sponsor. “Today is an opportunity for us to move to the next step and show our strength not to bow to Wall Street.”
McLaughlin said the city would only use eminent domain “when a clear public purpose is served.”
It was standing room only in the Council chambers, and dozens of residents and community leaders toted signs in support of the plan.
Although Richmond remains the first city in the country to consider using eminent domain to stem foreclosures, McLaughlin said cities across the country – including San Francisco, El Monte, Seattle, WA, Yonkers, NY, Irvington, NJ – are mulling the idea and have expressed support for Richmond.
With nearly half of the mortgages in Richmond underwater, the city is proposing to buy properties at current market value in hopes of preventing another wave of foreclosures.
Richmond officials are planning to use the city’s eminent domain power to seize the mortgages that banks refuse to or reduce, slash the value to current market value, and resell them to other lenders. The program could reduce the principal owed by homeowners, ultimately making monthly payments more manageable.
“We’re here today saying that it’s time for a local solution,” community organizer Melvin Willis said. “The financial industry doesn’t rule us. We are standing up to Wall Street.”
While most residents spoke in favor of the plan, some still worry eminent domain isn’t the solution.
“I have no problem with sticking it to the banks, but for the most part the banks no longer own these loans,” said Richmond resident Don Gosney. “While we all want to see distressed homeowners find a solution to this problem, this is the wrong approach.”
Vice Mayor Corky Booze and Councilman Jim Rogers, who voted against the resolution, both expressed concern about the potential financial and legal risks to the city. Bates, who was absent from Tuesday’s meeting, sent an email to the council proposing a ballot initiative that would allow citizens to vote on the eminent domain plan in 2014.
“I understand it’s fun to be risky… but my job is not to listen to my anger, my job is to try to make the best decision for the city of Richmond,” Rogers said. “Until we resolve the liability issue, it’s a deal breaker for me.”
With banging drums and soaring chants, more than 100 people rallied outside of City Hall ahead of Tuesday’s meeting in support of the housing plan.
“You’re not alone,” Doris Ducre said. “Hang in there. Fight. We will win.”
Despite the fanfare, Constance Delany said she’s still leery.
“Have you tried anything else?” Delany asked the council members. “I don’t like to see the housing crisis destroying city after city, but when I hear eminent domain, red flags go up. I’m seriously concerned about the motives behind the slogan.”
"National Attention on Richmond Versus Banks"
2013-09-30 from "Labor Notes Bay Area" newsletter:
The Richmond City Council plan to fight blight and maintain neighborhoods has drawn national attention in the media and opposition from banks, realtors and investor groups. The plan provides for the city to encourage "Principle Reductions" on underwater mortgages with reduced payments to allow people to stay in their homes and will consider using "eminent domain" powers if necessary. The finance industry has responded with court suits (recently thrown out) and expensive mailing and PR campaigns led by "liberal" PR firm, Whitehurst/Mosher, which does a lot of work for SEIU and Democratic Party campaigns.
Despite the well-financed opposition, other cities in California, including San Francisco are considering adopting the same strategy.
The Richmond plan has already drawn support from the Building Trades in Contra Costa and San Francisco. In a letter dated August 1, the Contra Costa Building Trades Council sent a letter to Mayor McLaughlin commending her and the Council "for becoming the first city in the nation to use eminent domain to stop foreclosures."
"Many of the Richmond residents were steered into predatory loans which are generally the most unfavorable to borrowers and they have been struggling to stay in their homes. Keeping Richmond residents in their homes is needed to fight blight and keep the community intact.
"This is not only beneficial for the homeowners who are our members but also a benefit for the entire community. We commend you for approaching this problem in a new and creative way."
More support from labor is needed.
The campaign is led by ACCE working with the Richmond Mayor, Council, and city staff and Mortgage Resolution Partners.
For more information:
* Richmond CARES [http://richmondcares.com/]
* ACCE Home Defenders League [http://www.homedefendersleague.org/stand_with_richmond_ca]
* Richmond Progressive Alliance Newsletter [http://www.richmondprogressivealliance.net/info_archives/RPA120_DefendAnti-Blight.html]
"Meet the Mayor Who’s Using Eminent Domain to Fight Foreclosure; The fearless Gayle McLaughlin of Richmond, California, has taken on Chevron and big banks on behalf of taxpayers and underwater homeowners"
2013-11-20 by Laura Flanders from "The Nation" [http://www.thenation.com/article/177296/meet-mayor-whos-using-eminent-domain-fight-foreclosure#]
Gayle McLaughlin is serving her second term as mayor of Richmond, California, the first Green Party official to represent a city of more than 100,000. Last year, after a fire at a local Chevron refinery sent 15,000 residents to the hospital, the city sued the company for damages. Now McLaughlin’s advancing a plan to use the city’s eminent domain power to acquire troubled loans so as to stop a new wave of foreclosures. This interview has been edited and condensed. —Laura Flanders
LAURA FLANDERS: You’re just back from Ecuador, where you toured communities that, like Richmond, are in a struggle with Chevron. Isn’t it enough to take on your city’s biggest taxpayer? Why take on the big banks too?
GAYLE McLAUGHLIN: Chevron does pay a lot of taxes. We don’t think it’s nearly enough. We have a right to have safety for our community. That’s why we put forth our lawsuit—to make sure they put our community before their profits. And that’s why we’ve come up with our new program [to help underwater homeowners].
LF: An article in today’s New York Times is headlined “Settlement Report Finds Banks Giving Timely Mortgage Relief.” What’s the problem?
GM: Much of the so-called “relief” has come in the form of short sales, which means more families losing their housing and neighborhoods destabilized. We’re working to keep more families in their homes! The settlement did lead to some more homeowners getting modifications with principal reduction, but the problem has been that the numbers are just too small compared with the scale of the problem. We need a broader market fix that resets mortgages to current home values.
LF: So what’s your plan?
GM: The Richmond CARES program is focused on preventing foreclosures, keeping people in their homes and stabilizing neighborhoods.
LF: You tried to explain it in person to the CEO of Wells Fargo. What happened?
GM. I went with a whole coalition of community organizations to Wells Fargo’s head office. We were making it clear that the banks should negotiate with Richmond. They shouldn’t be taking us to court. The idea was to talk with him and invite him to come see our neighborhoods. They locked their doors and wouldn’t meet.
LF: In addition to a lawsuit from Wells Fargo and Deutsche Bank, the real estate lobby is working against you, and the Federal Housing Finance Agency has threatened sanctions against “any local or state action” that uses eminent domain to restructure mortgage loan contracts. Are you concerned?
GM: We have researched this very thoroughly. First, we have offered to buy the mortgages from the bond owners at fair market value. We’ll have them appraised by a third party. We want to negotiate, but secondly, we have the right to use eminent domain for a public purpose. It’s been used for all the wrong reasons, such as moving people out of their homes for big stores.
LF: What difference does it make that you have groups like the Alliance of Californians for Community Empowerment at your back?
GM: It makes all the difference in the world. We need homeowners involved in designing the program. That’s how we built the movement in Richmond and how we’re extending it to other cities. With all the misinformation put out there by Wall Street, it becomes imperative that we have people sharing the truth and overcoming the false messages put out by the opposition.
LF: Is it good that you’re Green?
GM: It’s the independent thinking that makes the difference. One party is moving us into a brick wall at 100 mph. The other is moving us there at 50 mph. We’re still going in the wrong direction, in my view.
LF: Anything else?
GM: In Richmond we’re solvent, we’ve reduced crime and we have a new General Plan based on sustainability and equity. I’m termed out, and next year we’re going to have a battle on our hands. They’re going to throw a mountain of money against the progressive candidates.
2013-09-03 "Community helps Richmond homeowners, Wall Street hates it"
from "SEIU 1021 NewsWire":
A new City of Richmond program helps victims of the housing crisis stay in their homes -- and Wall Street banks hate it.
This summer SEIU 1021 joined the mayor of Richmond, ACCE, and other community allies to announce a first-in-the-nation program to help low-income minority residents who were victims of predatory, subprime lenders.
The program would allow the city to purchase underwater mortgages and refinance or modify them to reduce the principal to a level more in line with market values throughout the struggling city. If banks and lenders refuse to sell the mortgages, the city will use eminent domain to purchase the loans.
Now the program is getting lots of publicity because the banks are panic-stricken and suing the city to stop the program in its tracks before the idea spreads nationwide.
"One way to judge the virtues of the city of Richmond's initiative to use eminent domain to help its strapped mortgage borrowers is by the hysterical reaction of the banks and investors holding the mortgage loans," wrote the LA Times. "They've enlisted federal regulators ... [and] have even cajoled some of their housebroken congressmen into introducing legislation to stop Richmond in its tracks. ... So there must be something to the city's idea."
2013-08-31 "Richmond's Local Principal Reduction program"
message from Richmond Mayor Gayle McLaughlin:
Hope everyone is enjoying the beautiful Bay Area weather we have been experiencing!
I know most of you have heard about Richmond's innovative program to reduce mortgage principals as an anti-blight campaign to improve and stabilize our neighborhoods!
Here is a great column about Richmond's program that was published in today's LA Times.
Please take a moment to read this column [http://www.latimes.com/business/realestate/la-fi-hiltzik-20130901,0,1360275.column]
2013-06-16 "A rescue for Richmond's underwater mortgages?"
by Carolyn Said [www.sfchronicle.com/bayarea/article/A-rescue-for-Richmond-s-underwater-mortgages-4603273.php]:
Morris LeGrande, (left) with ACCE, (Alliance of Californians for Community Empowerment) asks for a show of hands of homes currently underwater, during a public meeting the Nevin Community Center in Richmond, Calif. on Saturday June 15, 2013. (Michael Macor, Michael Macor/The Chronicle)
Almost 100 Richmond residents held a spirited meeting in a community center Saturday to build support for a revolutionary plan to revamp many of the troubled mortgages in the city.
Beleaguered by the foreclosure crisis, Richmond is on the verge of pioneering the use of eminent domain as a tool to seize and restructure loans on underwater homes, slashing many thousands of dollars off their principal. It's an untested approach fiercely opposed by banks, which say it's an illegal use of power that threatens mortgage lending and property rights.
"We can change the course in Richmond and make it a model for other cities," Mayor Gayle McLaughlin told a cheering crowd. Earlier, when asked how many of them were underwater with their mortgages, almost every single person had raised a hand.
Despite the real estate market's recent rebound, Richmond remains a deeply distressed city, with one of the highest underwater rates in the state. Almost half of all homeowners with mortgages there owe more than their houses are worth, according to real estate service Zillow.com.
"The housing crisis continues in Richmond," McLaughlin said. "People's lives did not get bailed out."
Partner in plan -
Richmond's City Council voted 6-1 in March to partner with a San Francisco firm, Mortgage Resolution Partners, as an adviser on the plan. MRP would line up investors to lend Richmond the money to acquire the mortgages and then would help refinance them into Federal Housing Administration loans, earning a flat fee of $4,500 per mortgage.
"My investors want to make a return, but our primary motive is to help this intractable problem that drags down the whole economy: People are being thrown out of their homes," said MRP Executive Chairman Steven Gluckstern, a serial entrepreneur with a Wall Street pedigree.
"We're a small startup of five people that raised millions of dollars from 50 individuals who care about this issue," he said. Those investors include former San Francisco Mayor Willie Brown, who is a Chronicle columnist.
Threats from banks -
Other local governments, including San Bernardino County and the city of Salinas, have considered working with MRP, but backed down under the threat of legal action from banks.
Rodney Conway, 52, a disabled Navy vet who lost his longtime letter-carrier job a few years ago, is among those hoping for help. He and his wife paid $340,000 for a modest two-bedroom home in Richmond in 2004. Today it's worth about $140,000. They have stayed current on their payments but still owe $320,000 and have no hope of ever having equity.
"We're basically renting this house for $2,000 a month until I die," said Conway. "It will never get paid off."
But the eminent domain plan could change all that. Here's how it would work:
Richmond would approach the financial organization that holds Conway's loan and offer to buy it at a discount to the property's value. If the offer were refused, the city would invoke eminent domain to compel a purchase, paying 80 percent of the property's current value, or $112,000. That discount is based on pricing for other underwater loans that change hands, Gluckstern said.
Fair market value -
Eminent domain, which is most commonly used to acquire private property for such public uses as freeways, parks and utility rights-of-way, requires paying fair market value.
Richmond would then help Conway get a regular loan from an FHA lender for 95 percent of the property's value, or $133,000. That would leave him with 5 percent equity and would cut his monthly payments by two-thirds to $635.
The $133,000 would first repay the $112,000 fronted by the investors. The remaining $21,000 would be split three ways, among the investors, the city and expenses. RMP's flat fee would come out of the expenses.
"To make (the house) affordable for what it's worth would be wonderful," Conway said. "We could finally get a foothold. I would bite the bullet to get that principal lowered down and keep making our old (higher) payments for a year or so."
But that assumes the plan goes through. In reality, it will face huge legal challenges from the get-go, which MRP says it will litigate.
"If it goes to the Supreme Court, I'll stand with it. That's how strongly I feel," McLaughlin, the mayor, said in an interview.
'Costly litigation' -
If the city seizes mortgages via eminent domain, "Richmond may be tied up in costly litigation for years to come," 22 banking and real estate trade groups wrote in a strongly worded letter to city leaders. The tactic will make it much harder and more expensive for Richmond residents to get mortgages in the future, they said. Moreover, the mortgage-backed securities the plan would target are held by many "everyday savers and investors," they said.
"Using the power of eminent domain to abrogate a contractual agreement between borrower and creditor would have far greater and lasting negative effects on existing and future Richmond homeowners and on small Main Street investors from Richmond and elsewhere who have these investments in their pension plans and other savings vehicles," they wrote.
Richard Green, director of the University of Southern California Lusk Center for Real Estate, said he understands the frustration that's led city leaders to consider using eminent domain, but thinks the reality would be a lot harder to manage than they realize.
"I think threatening to do it is a good idea and may motivate lenders to help solve problems," he said. "Actually doing it is not a good idea."
Eminent domain as housing fix -
What: Richmond is considering a plan to use eminent domain to seize mortgages on underwater homes and restructure them to be more affordable. Governments ordinarily use this power to forcibly acquire private property for public use, such as roads. It requires paying fair market value for the property.
Who: To be eligible initially, homeowners would have to be current on their payments and not have a government-backed mortgage. Homeowners behind on payments could be eligible in the future.
How it works: Consider a home that sold for $360,000 and is now worth $200,000, while the homeowners still owe $300,000 on it. If they couldn't refinance, their interest rate might be 6 percent, meaning monthly payments of $1,800.
Richmond would seize the mortgage from private bondholders.
Its partner, Mortgage Resolution Partners, would find investors to pay $160,000 for it: the property's value minus 20 percent - the estimated costs if it went through foreclosure.
The homeowner would refinance the mortgage through a Federal Housing Administration loan at $190,000, or 95 percent of the value, leaving them with 5 percent equity. At an interest rate of 4 percent, their new monthly payment would be $907 - about half of what they were previously paying.
The $190,000 would pay back the $160,000 fronted by the investors. The remaining $30,000 would be split three ways: among the city, the investors and for costs - including a flat fee of $4,500 to Mortgage Resolution Partners.
Why: The idea is to prevent foreclosures by giving people whose homes are deeply underwater more sustainable payments and the ability to gain equity.
Source: Chronicle research
47 percent: Share of mortgaged homes underwater
$728 million: Total in negative equity
7.3 percent: Share of mortgages behind on payments
$191,700: Median home value
-58.6 percent: Change in home value from peak
Comment to the following article from Mike: If we had real statewide funding for basic homeless services and temporary housing, there would not be such a migration of folk from under-served areas [to San Francisco]. Current policy shunts folk from high cost areas with few or no services to metro areas where costs might be more manageable, especially transportation and medical access. The state however, has devolved almost all social services that would serve the homeless to local counties with no funding source to provide those services. This has truly become a race to the bottom. The waiting list for most families applying for Section 8 vouchers is now two to three years - condemning people to hang out on the streets and sleep in their cars until their number comes up. This obviously does irreparable damage to children and other members of the household. Saying we can't afford to relieve their misery is no excuse.
"Unnecessary uproar over plan favoring SF's homeless"
by C.W. Nevius from "San Francisco Chronicle" [www.sfchronicle.com/bayarea/nevius/article/Unnecessary-uproar-over-plan-favoring-SF-s-4615712.php]:
It would be a wonderful thing if San Francisco had so much money and so many resources that it could house every homeless family that stopped in the city.
In fact, there's a shortage. For at least the past year, there have been more than 200 families on a waiting list to get shelter in the city. The wait for housing is more than seven months, and the list isn't getting any shorter.
Clearly San Francisco cannot be the provider for every homeless family in Northern California. Logically, the city should concentrate on families that live in San Francisco. Because if there are families on the list now who are living somewhere else, they're taking up a spot on the list that should go to a local family.
That much is a given. I believe even the most vociferous critics of city policy would agree.
That's why Human Services Director Trent Rhorer has proposed a policy that would limit eligibility for the shelter list to local residents (or families that intend to reside in San Francisco). There are probably cities where that wouldn't raise a hint of controversy.
Those cities are not San Francisco.
The outcry began immediately. There were complaints that this is a solution in search of a problem. Gripes that there is not enough data. And, when there is data, doubts that it is accurate.
A Thursday hearing chaired by Supervisor David Campos degenerated into a statistical face-off, with every group coming up with different numbers.
The Human Services Agency says its data showed almost 50 percent of the homeless families on the waiting list were not residents. But Compass Connecting Point, the nonprofit that manages the waiting list, says the number is more like 10 percent.
Rhorer says 40 percent of the homeless families on the waiting list are not signed up for CalWORKs (which is essentially the new name for welfare), but Campos says he's heard that virtually all the families are participating.
Knee-jerk reaction -
The number-squabbling brought the proceedings to a standstill.
"I'm not saying who is right," Campos said. "But my concern is: What is the problem and do we have the data?"
Here's a better question. What difference does it make?
If it is really true that 50 percent of the families are not San Francisco residents, the new requirement would address that. If there are only a small number, like 10 percent, what's the problem? It won't affect many people anyhow. Either way, San Francisco residents benefit.
This looks more like a knee-jerk reaction to anything that changes anything about dealing with homelessness. If you'd like to talk about factors that are not data driven, where's the evidence that asking families to verify residency will decrease the number of homeless families in shelters?
Rhorer's plan has five criteria, any one of which would qualify the family: application or admission to CalWORKs in the city, employment in the city, a child in a San Francisco school or preschool, living in a city homeless shelter for 14 nights, or proof of residency in a friend or family member's San Francisco home, transitional housing or even jail or a hospital.
"It's not outlandish," Rhorer says. "In fact, applying for CalWORKs is something good. They offer child care, job placement and the most robust services in the state. We got 2,000 people jobs last year. That's a good thing."
Working with critics -
Don't expect any agreement on that.
"No one disagrees that we want to take advantage of CalWORKs," Campos said. "But is the best way to increase it to require it or to remove barriers?"
Again, who cares? If requiring it increases participation, terrific. If they don't sign up, well, that's where we are now. What's the difference?
It is also important to remember that Rhorer doesn't need the approval of the Board of Supervisors to do this. He is trying to work with critics, but technically he can impose the policy whenever he's ready.
This isn't a new idea. Rhorer has been talking about trying to find a way to make local services work for local residents for years. I have to think he's held off because he knew the criticism would be so over the top. I asked him why he decided to take a stand now.
"The better question is: Why did it take us so long?" he said.
2013-07-31 "Richmond's pioneering eminent-domain threat"
by Carolyn Said from "San Francisco Chronicle" [http://www.sfgate.com/business/article/Richmond-first-to-jump-into-eminent-domain-battle-4695857.php]:
Homeowners and local officials stood on the steps of Richmond City Hall to praise the new plan Tuesday July 30, 2013. The city of Richmond, Calif. is teaming with private investors to buy up over 600 mortgages in the city from large banks to help homeowners redo their loans so they can stay in their homes. Photo: Brant Ward, The Chronicle
Taking a controversial plunge into uncharted waters, Richmond is poised to become the first city in the country to invoke eminent domain to address its foreclosure crisis.
"After years of waiting on the banks to offer up a more comprehensive fix or the federal government, we're stepping into the void to make it happen ourselves," Mayor Gayle McLaughlin said Tuesday.
On Monday the city sent letters to 32 banks and other mortgage holders offering to buy 624 underwater mortgages at discounts to the homes' current value. If the offers are spurned, the letter said Richmond may use the power of eminent domain to condemn the mortgages and seize them, paying court-determined fair market value.
The city would then help the underwater homeowners refinance into mortgages in line with their homes' current worth. City leaders said the goal is to stabilize the community and prevent foreclosures.
Wall Street vehemently opposes the untested idea, claiming it violates property rights and would have a chilling effect on future mortgages in Richmond and could lead to years of costly litigation.
"We think it is unconstitutional, illegal and very bad policy," said Chris Killian, managing director of the Securities and Financial Markets Association, a trade group representing banks, securities firms and others.
Could raise costs -
Banks said future mortgages in Richmond would likely be much more expensive to compensate for the extra risk that the city could seize them. McLaughlin characterized that as "redlining" and said the city would fight it.
"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, Killian said. "That's just the way markets work. If you buy a car and they say the brakes don't work all the time, would you pay full price?"
Wells Fargo, one of the largest mortgage holders in Richmond, said in 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."
Richmond has partnered with San Francisco firm Mortgage Resolution Partners for technical assistance and financial backing.
MRP has said it will handle all legal costs - which could be substantial.
The for-profit firm, which would receive a flat fee of $4,500 per mortgage, will provide funds to acquire the mortgages and then will help the homeowners refinance into loans backed by the Federal Housing Administration.
Many of the underwater mortgages were issued several years ago when interest rates were much higher. Plan proponents said that if Richmond's 4,600 underwater mortgages were reset to the homes' current market value and current interest rates, the homeowners would save an average of $1,180 a month on mortgage payments.
However, even backers said the plan can't be extended to every underwater mortgage in the city. Instead, it concentrates on ones that are not government backed and are held in Wall Street instruments called private securitization trusts.
The recent surge in home values hasn't helped Richmond, where 47 percent of mortgages are still underwater, according to real estate firm Zillow.com.
"In our community we have not seen nor felt any impacts of that" market rebound, said Morris LeGrand, whose Richmond home is worth about $130,000 - far less than he owes on it. "I'm a homeowner by technicality only," he said. "I will never own this home under the current conditions."
Using eminent domain -
Eminent domain, which is used to acquire private property for public use, is more commonly associated with government-related development projects, such as buying houses to build a freeway or an airport. It requires paying fair market value for the seized property. Government bodies go before a jury to establish what would be a fair price.
Before that could happen, a Contra Costa County Superior Court judge would determine whether the city had the right to exercise eminent domain, said Bill Falik, an attorney and a partner in MRP.
"Richmond has tremendous legal authority to condemn underwater mortgages," he said. "It doesn't matter if this is a highway project. Foreclosures and underwater properties reduce property taxes and reduce neighboring homes' value. That's called blight, and eminent domain is the authority for cities like Richmond to correct blight."
Richmond and MRP want to buy the mortgages for 80 percent of the homes' current values, leaving a margin for profits and expenses. MRP says the 20 percent discount is what the banks would lose if the home went through foreclosure.
More cities in line -
Several other cities, including North Las Vegas and the Southern California towns of El Monte and La Puente, are considering partnering with MRP. San Bernardino County as well as two of its cities, Fontana and Ontario, had previously looked at the idea but then dropped it in the face of fierce opposition from the banking industry.
"Richmond is not afraid to create innovative policies," said City Councilwoman Jovanka Beckles, standing on the steps of Richmond City Hall surrounded by several dozen supporters Tuesday, many from the activist group the Alliance of Californians for Community Empowerment. "In extreme times we create extreme solutions."
When local real estate broker Jeffrey Wright said he opposed the eminent domain plan as "fraught with peril" and bad for the housing market, the ACCE members loudly jeered at him.
Richmond's plan -
Richmond hopes to pioneer an unorthodox use of eminent domain power to seize and restructure underwater mortgages. Here's how it would work:
Richmond and Mortgage Resolution Partners - a private firm that is handling the financial side - want to pay 80 percent of the homes' current value, leaving a margin for profits and expenses. MRP says the 20 percent discount is what the banks would lose if a home went through foreclosure.
For instance, if a home with a $300,000 mortgage is now worth $200,000, Richmond would seize the mortgage from the private bondholders who own it for $160,000, or 80 percent of $200,000.
The homeowner would then refinance at $190,000 - or 95 percent of the value. That would leave the homeowner with 5 percent equity. The $190,000 mortgage would pay back the $160,000 used to acquire the loan. The remaining $30,000 would be split among the city, the investors and for costs, including MRP's $4,500 fee.
By the numbers -
624 Loans Richmond has made offers on
444 Loans current on payments
180 Loans delinquent on payments
32 Servicers for those loans
$241.98 million Total face value of those 624 mortgages
$177.16 million Total current market value of the 624 homes
$68.82 million Negative equity in the homes
2013-08-20 Pricey homes in Richmond's eminent domain plan"
by Carolyn Said from "San Francisco Chronicle" [http://www.sfgate.com/business/article/Pricey-homes-in-Richmond-s-eminent-domain-plan-4745146.php]:
Richmond's controversial plan to seize underwater mortgages through eminent domain includes loans for at least two homes purchased for over $1 million as well as other high-end properties - a revelation that appears to undermine the city's argument that the plan would combat blight.
The city is pursuing mortgages with balances ranging from $98,000 to $1.12 million, according to data collected by Marc Joffe, an analyst who received the property addresses, loan balances, offer amounts and other information through a California public records request and shared them with The Chronicle.
Richmond threatened last month to become the first city in the country to invoke eminent domain for underwater mortgages when it sent letters to 32 banks and other entities asking to purchase 624 home loans at a discount to current property values. If the institutions declined, the city said it would consider forcibly acquiring the mortgages through eminent domain. It would then help the homeowners refinance into smaller, more-affordable loans.
Eminent domain is the seizure of private property for a public purpose. City leaders argued that the public purpose is to keep families in their homes and prevent blight and the destabilizing impact of foreclosures. Banks say the plan is unconstitutional and would drive up lending costs in Richmond.
The data show the targeted loan balances are fairly high. A total of 121 loans are for over $500,000, with 43 above $600,000. The average loan balance is $387,800; the median is $378,920.
Richmond's offers, which are closer to what it considers current market value, include 30 for more than $400,000 and 108 for above $300,000. The average offer is $202,678; the median is $179,900.
Undercuts argument -
"Richmond is framing this issue as trying to protect down-and-out people struggling to get by against the rich banks," Joffe said. "It undercuts their argument" to have higher-end homes and loans involved. "You think they'd be careful enough to select properties of people who were really needy." If the homes in upscale areas went into foreclosure, they'd be quickly purchased, Joffe said, rather than sit vacant and contribute to blight.
Joffe, a Walnut Creek resident who consults for New York's PF2 Securities Evaluations, which offers advice on structured-finance valuations and lawsuits, said he has no financial relationship with any of the entities that control the mortgages.
Steven Gluckstern, chairman of Mortgage Resolution Partners, the private San Francisco company that is providing Richmond with financial backing, technical advice and legal resources, said the location of the homes and their prior values aren't relevant.
"We don't discriminate against anyone in this program," he said. "We don't pick and choose who's entitled to their property and who isn't. The criteria for which loans were chosen is how much underwater they are and the propensity to default."
A final cut -
Patrick Lynch, Richmond's housing director, said that the city sent out the letters before performing due diligence on the properties selected by MRP, but that the city would vet the choices before it would proceed with eminent domain seizures. It is quite possible that the homes in nicer areas would not make the final cut, he said.
Richmond "would look at a number of indicators," he said. "I think one of those indicators may be the assessed property valuation, not only for that house, but for the surrounding street and neighborhood. We as a city have a sense of blight different than an appraiser, so how many houses on that street are foreclosed or underwater could be an indicator, as well as the overall health of the neighborhood."
A map of the homes targeted so far shows them evenly dispersed throughout Richmond. Nine are in Point Richmond, the city's most expensive neighborhood; 14 are in neighboring Brickyard Cove, an upscale waterfront condo community. Forty-three are in Marina Bay, another waterfront condo community.
2013-08-08 "In a Tizzy, Wall Street Banks File Suit over 'Eminent Domain for the People'; City consultant: 'The financial institutions that brought us this crisis are yet again part of the problem rather than part of the solution'"
by Sarah Lazare from "Common Dreams" [http://www.commondreams.org/headline/2013/08/08-2]:
As threatened, Wall Street banks have now slammed the city of Richmond, California with a federal lawsuit in an attempt to block an innovative plan which would use local governmental authority of eminent domain to force banks not to foreclose on people's homes.
Housing justice advocates and government consultants say that banks are scared of a hopeful new strategy to curb the ongoing U.S. housing crisis, a solution they hope will spread beyond this poor and working class city of 100,000.
Filed by banking giants Wells Fargo & Co. and Deutsche Bank, and with the help of Fannie Mae and Freddie Mac, the suit followed a tizzy of public legal threats from big banks aimed at intimidating Richmond and other municipalities from pursuing such plans in the first place.
Richmond became the first California city last week to lay out the strategy of asking big bank lenders to sell underwater mortgage loans at a discount to the city (if the owner consents), and seize those homes through eminent domain if the banks refuse. Then, according to the plan, the city would refinance these homes for owners at their current value, not what is owed, thus reducing the mortgage burden for its citizens and helping to stabilize the housing market.
As previously reported by Common Dreams, the plan marks a new twist on eminent domain laws, which have been traditionally used by cities to displace poor and working class people and communities of color from their homes to make way for big money projects like stadiums and highways.
"If it happens and happens successfully, it will spread like a wildfire," Steven Gluckstern, chairman of Mortgage Resolution Partners which helped design the plan, told the Sacramento Bee. "That's one of the reasons the opposition is working so hard to prevent us from being successful."
"Sadly," he added, "the financial institutions that brought us this crisis are yet again part of the problem rather than part of the solution."
The Richmond initiative, which was won through sustained community organizing urging the government to address the severe housing crisis, appears to be gaining traction across the United States, with at least four other California municipalities considering the plan [http://online.wsj.com/article/SB10001424127887324522504578654690187664354.html].
California housing justice organizers told Common Dreams they feel hopeful about this local initiative to use laws already on the books—that have historically been levied against poor people—to help residents stay in their homes. They insist that, in the face of the complete failure of the Obama administration to enact a solution to the housing crisis, local solutions such as this will become more and more important.
2013-08-07 "'Eminent Domain for the People' Leaves Wall Street Furious; Housing justice advocates hopeful about innovative Richmond plan to use public seizure laws to save underwater homes from foreclosure"
by Sarah Lazare from "Common Dreams" [http://www.commondreams.org/headline/2013/08/07-4]:
Using the authority of state government to actually help people has Wall Street bankers in a panic, spurring threats of aggressive legal retaliation against the town of Richmond, California simply for trying to help some of its struggling homeowners.
'Eminent domain' has long been a dirty term for housing justice advocates who have seen municipalities invoke public seizure laws to displace residents and communities to make way for highways, shopping malls, and other big dollar projects.
But in Richmond, city officials are using eminent domain to force big banks to stop foreclosing on people's homes in an innovative new strategy known as 'Principle Reduction' aimed at addressing California's burgeoning housing crisis.
Richmond became the first California city last week to move forward on a plan that has been floated by other California municipalities to ask big bank lenders to sell underwater mortgage loans at a discount to the city (if the owner consents), and seize those homes through eminent domain if the banks refuse. The city has committed to refinancing these homes for owners at their current value, not what is owed.
City officials launched this process by sending letters in late July to 32 banks and other mortgage owners offering to buy 624 underwater mortgages at the price the homes are worth, not what the owners owe.
"After years of waiting on the banks to offer up a more comprehensive fix or the federal government, we're stepping into the void to make it happen ourselves," Mayor Gayle McLaughlin said in late July.
Wall Street is furious at the plan and has vowed to sue the municipality, a threat that did not stop Richmond but did slow other California cities in adopting the strategy.
Big banks have been slammed for their damaging mortgage loan policies that target poor and working class people and communities of color with high risk loans, policies that have had a profound impact on Richmond, which has large latino, African American, and low-income communities.
Eminent domain laws also have a painful history in Richmond, but housing justice advocates are hopeful about this new twist on the seizure law.
"For years we have seen cases where eminent domain was used in a harmful way, and it really hurts low-income communities of color," David Sharples, local director for Contra Costa Alliance of Californians for Community Empowerment, told Common Dreams. "People here in Richmond talk about when they built the big 580 Freeway, and people had their houses taken and were displaced."
"But we see this as a way eminent domain is finally being used to help keep families in their homes," he added. "It is finally a way for it to be used in a good way."