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California City Threatens to Use Eminent Domain to Stop Bank Foreclosures
A town in California is making headlines on how it is tackling its foreclosure crisis. In Richmond, almost half of the city’s residential mortgage holders are underwater. In a major development last week, Richmond became the first city in the country to offer to purchase mortgages of distressed homeowners from Wall Street banks and other lenders. Under a plan approved by the city council in April, the city can also use its eminent domain authority to purchase loans in order modify them and allow families to avoid foreclosure and stay in their homes. "The banks sold our community predatory loans, and now they have no solution they’re presenting for this crisis," says Richmond Mayor Gayle McLaughlin. "We are stepping in by taking these troubled loans off the hands of the banks, and we’re paying them fair market value for these loans. And then we’re working with the homeowners to refinance and modify loans in line with current home values. We call on the banks to voluntarily sell us these loans, and if they don’t cooperate, we will be considering eminent domain.
AMY GOODMAN:
As President Obama heads to Phoenix today to talk about housing, I want to turn now to how Richmond, California, is tackling its foreclosure crisis. Almost half the city’s residential mortgage holders are underwater. In a major development last week, Richmond became the first city in the country to offer to purchase mortgages of distressed homeowners from Wall Street banks and other lenders. Under a plan approved by the Richmond City Council in April, Richmond can also use its eminent domain authority to purchase loans in order to modify them and allow families to avoid foreclosure and stay in their homes. Other cities are advancing similar bills, like Newark, New Jersey, and here in New York City.
Well, Richmond Mayor Gayle McLaughlin, who’s a member of the Green Party, remains with us now from Berkeley, California, to discuss this new way of addressing the foreclosure crisis. Lay it out for us, Mayor McLaughlin.
MAYOR GAYLE McLAUGHLIN:
Yes, of course. First of all, the housing crisis in Richmond is not over, far so from being over. We had 900 foreclosures last year and just as many in the pipeline this year. So, this situation is something that we feel in the city of Richmond we have to address. It’s destabilizing our families. It’s destabilized neighborhoods. And it’s caused a huge impact to the city as a whole.
So, the city is stepping in to fix the situation. The banks sold our community predatory loans, and now they have no solution that they’re presenting for this crisis. So we are stepping in to fix the situation. We’re stepping in by taking these troubled loans off the hands of the banks. And we’re paying them fair market value for these loans, and then we’re working with the homeowners to refinance and modify loans in line with current—current home values. So we call on the banks to voluntarily sell us these loans. And if they don’t cooperate, we will be considering eminent domain—again, paying them fair market value for these mortgages. So—
AMY GOODMAN:
Republican Congressmember John Campbell of California has introduced a bill that would block your efforts to use eminent domain to purchase home mortgages. In a press statement, Campbell said, quote, "Using eminent domain to seize mortgages is not only legally questionable, it represents a complete abrogation of private property rights. The federal government and the American taxpayer would be forced to bear all the risk in the event of a failure. Further, these schemes pose a critical threat to recovery of the housing sector as lenders and investors that a sustainable housing finance system rely on would not have any faith in the durability of contracts. Moreover, the savers and retirees who own these mortgages, many of them through their pension funds and 401(k) accounts, would be exposed to serious losses," unquote. Mayor McLaughlin, your response?
MAYOR GAYLE McLAUGHLIN:
Well, first of all, that argument does not hold water at all. This is a fair and simple transaction. They’re getting fair market value for mortgages. The city has every legal right to do this. The city has researched this, you know, vastly and from many legal sources. We’re utilizing eminent domain, if necessary, to help a situation. The market will not recover without this recovery for cities like Richmond that are struggling still with a spiraling-down housing crisis. So, we don’t think that bill in Congress will pass. We don’t think it holds water. We think that we have every right to do so, and that is—to move forward, as we are, and an obligation to do so. So, we think these kind of actions are totally, totally outside the realm of the law.
http://www.democracynow.org/2013/8/6/california_city_threatens_to_use_eminent
AMY GOODMAN:
As President Obama heads to Phoenix today to talk about housing, I want to turn now to how Richmond, California, is tackling its foreclosure crisis. Almost half the city’s residential mortgage holders are underwater. In a major development last week, Richmond became the first city in the country to offer to purchase mortgages of distressed homeowners from Wall Street banks and other lenders. Under a plan approved by the Richmond City Council in April, Richmond can also use its eminent domain authority to purchase loans in order to modify them and allow families to avoid foreclosure and stay in their homes. Other cities are advancing similar bills, like Newark, New Jersey, and here in New York City.
Well, Richmond Mayor Gayle McLaughlin, who’s a member of the Green Party, remains with us now from Berkeley, California, to discuss this new way of addressing the foreclosure crisis. Lay it out for us, Mayor McLaughlin.
MAYOR GAYLE McLAUGHLIN:
Yes, of course. First of all, the housing crisis in Richmond is not over, far so from being over. We had 900 foreclosures last year and just as many in the pipeline this year. So, this situation is something that we feel in the city of Richmond we have to address. It’s destabilizing our families. It’s destabilized neighborhoods. And it’s caused a huge impact to the city as a whole.
So, the city is stepping in to fix the situation. The banks sold our community predatory loans, and now they have no solution that they’re presenting for this crisis. So we are stepping in to fix the situation. We’re stepping in by taking these troubled loans off the hands of the banks. And we’re paying them fair market value for these loans, and then we’re working with the homeowners to refinance and modify loans in line with current—current home values. So we call on the banks to voluntarily sell us these loans. And if they don’t cooperate, we will be considering eminent domain—again, paying them fair market value for these mortgages. So—
AMY GOODMAN:
Republican Congressmember John Campbell of California has introduced a bill that would block your efforts to use eminent domain to purchase home mortgages. In a press statement, Campbell said, quote, "Using eminent domain to seize mortgages is not only legally questionable, it represents a complete abrogation of private property rights. The federal government and the American taxpayer would be forced to bear all the risk in the event of a failure. Further, these schemes pose a critical threat to recovery of the housing sector as lenders and investors that a sustainable housing finance system rely on would not have any faith in the durability of contracts. Moreover, the savers and retirees who own these mortgages, many of them through their pension funds and 401(k) accounts, would be exposed to serious losses," unquote. Mayor McLaughlin, your response?
MAYOR GAYLE McLAUGHLIN:
Well, first of all, that argument does not hold water at all. This is a fair and simple transaction. They’re getting fair market value for mortgages. The city has every legal right to do this. The city has researched this, you know, vastly and from many legal sources. We’re utilizing eminent domain, if necessary, to help a situation. The market will not recover without this recovery for cities like Richmond that are struggling still with a spiraling-down housing crisis. So, we don’t think that bill in Congress will pass. We don’t think it holds water. We think that we have every right to do so, and that is—to move forward, as we are, and an obligation to do so. So, we think these kind of actions are totally, totally outside the realm of the law.
http://www.democracynow.org/2013/8/6/california_city_threatens_to_use_eminent
Oh good. The courts have the responsibility of setting economic policy in re: municipal real estate now. This will end up in the Supreme Court decided by the folks who brought us Citizen's United. Bankrupt municipaklities vs. the banking industry.
Yeah, this'll go well.
Yeah, this'll go well.
Thanks for the update !
SAN FRANCISCO (AP) -- A judge has dismissed a lawsuit over a Northern California city's plan to use eminent domain to seize underwater mortgages.
U.S. District Court Senior Judge Charles Breyer ruled Monday that the lawsuit was premature because the city of Richmond had not yet approved the plan.
Wells Fargo & Co., Deutsche Bank AG and The Bank of New York Mellon sued Richmond after city officials began discussing plans to use eminent domain to seize the mortgages and offer them back to homeowners at cheaper rates. The banks want to stop Richmond from seizing the loans.
John Ertman, an attorney for the banks, tells the Contra Costa Times (http://bit.ly/18sYqNu) that the judge's ruling only postpones the day that Richmond will have to defend the eminent domain plan in court.
http://finance.yahoo.com/news/judge-rules-california-city-mortgage-153116831.html
(I remembered to post the link this time Barb :) )
U.S. District Court Senior Judge Charles Breyer ruled Monday that the lawsuit was premature because the city of Richmond had not yet approved the plan.
Wells Fargo & Co., Deutsche Bank AG and The Bank of New York Mellon sued Richmond after city officials began discussing plans to use eminent domain to seize the mortgages and offer them back to homeowners at cheaper rates. The banks want to stop Richmond from seizing the loans.
John Ertman, an attorney for the banks, tells the Contra Costa Times (http://bit.ly/18sYqNu) that the judge's ruling only postpones the day that Richmond will have to defend the eminent domain plan in court.
http://finance.yahoo.com/news/judge-rules-california-city-mortgage-153116831.html
(I remembered to post the link this time Barb :) )
No one can ever deny that both you OH and rivll's hearts are in the right place.
If only the issue was as simple as, screw the banks. The simplistic view of screw the banks to solve the problem is naive to say the least. Half the problem with these "frozen" homes is no one really knows who holds the mortgage(in the end this imo may be the biggest hurdle). The mortgages were packaged and sold to investors...investors such as pension funds--who knew what they were buying (high risk-high reward). The actuaries of these funds, having already made ridiculous assumptions of 8% returns per year on invested pension fund capital were just, if not more greedy than the banks in trying to make a profit. Again, it was Tulip mania
http://en.wikipedia.org/wiki/Tulip_mania
So on one hand you want to say you can't cut pensions, promises were made and on the other hand you now want to cut the value of some of their holdings in half through eminent domain, what's it going to be?
The bizarre thing is, Richmond may succeed. If that were to happen home prices would tank further into oblivion in Richmond. No matter how much something is perceived to be worth, if no one can buy it, what is it really worth? Zilch.
If only the issue was as simple as, screw the banks. The simplistic view of screw the banks to solve the problem is naive to say the least. Half the problem with these "frozen" homes is no one really knows who holds the mortgage(in the end this imo may be the biggest hurdle). The mortgages were packaged and sold to investors...investors such as pension funds--who knew what they were buying (high risk-high reward). The actuaries of these funds, having already made ridiculous assumptions of 8% returns per year on invested pension fund capital were just, if not more greedy than the banks in trying to make a profit. Again, it was Tulip mania
http://en.wikipedia.org/wiki/Tulip_mania
So on one hand you want to say you can't cut pensions, promises were made and on the other hand you now want to cut the value of some of their holdings in half through eminent domain, what's it going to be?
The bizarre thing is, Richmond may succeed. If that were to happen home prices would tank further into oblivion in Richmond. No matter how much something is perceived to be worth, if no one can buy it, what is it really worth? Zilch.
I agree that people are responsible for paying their debts.
The problem is that people lose their jobs, they become ill, there are a lot of reasons that come up for people losing their homes and we shouldn't assume they were all being irresponsible.
I also believe that the banks play a huge part in these losses with deceptive and unethical practices that has already been discussed. The fact that they are in part responsible for this crisis and that they will come to *profit* from a family losing their home is just wrong.
The problem is that people lose their jobs, they become ill, there are a lot of reasons that come up for people losing their homes and we shouldn't assume they were all being irresponsible.
I also believe that the banks play a huge part in these losses with deceptive and unethical practices that has already been discussed. The fact that they are in part responsible for this crisis and that they will come to *profit* from a family losing their home is just wrong.
I've seen poor people. I grew up with a family of kids whose parents were flat busted and the kids often had to "hustle" to find a meal or simply go without. For the children of that family and circumstances that are similar, it is horrible... tragic...
Going back to the subject at hand, I really have a hard time feeling sorry for someone who signs a note, knowing damned will they are not going to be able to cover that note. I feel more sorry for people who enter into a business situation that they have no clue as to what they are doing. If you are that clueless, you do NOT go sign up for a mortgage that you cannot cover without talking with some kind of a financial manager or an attorney.
Some people were fooled. I don't like that. The banks took horrible advantage of a lot of people, and I hate that too. But.... someone signed on the line at the end of the day. Those people have to take some blame for what has happened.
You find housing that you can afford. Maybe I am too realistic, but when we went looking for a home to buy, we did a lot of homework. That homework included taking out a couple of insurance policies in the event anything happened to the wife or myself, so the house could then be payed for.
Going back to the subject at hand, I really have a hard time feeling sorry for someone who signs a note, knowing damned will they are not going to be able to cover that note. I feel more sorry for people who enter into a business situation that they have no clue as to what they are doing. If you are that clueless, you do NOT go sign up for a mortgage that you cannot cover without talking with some kind of a financial manager or an attorney.
Some people were fooled. I don't like that. The banks took horrible advantage of a lot of people, and I hate that too. But.... someone signed on the line at the end of the day. Those people have to take some blame for what has happened.
You find housing that you can afford. Maybe I am too realistic, but when we went looking for a home to buy, we did a lot of homework. That homework included taking out a couple of insurance policies in the event anything happened to the wife or myself, so the house could then be payed for.
The piece of land in the Berkeley Marina where I visit and breakfast with my birds daily is less than a mile from Richmond. Actually one part of it is right on the border.
Every morning at sunrise I pass groups of people under the over pass packing up their baskets and bags, getting ready for another day of walking the streets collecting recyclables. They are clean, respectful people who are always friendly and I sometime bring them breakfast as well.
They are no different than you or me except they don't complain, they just get on with the business of living.
They are without homes.
If something is not done to help the people who got lousy deals and who are in over their heads, these underpasses will be filled with hundreds maybe thousands more.
Homeless people are not all druggies and madmen. They are families living in cars and many men and women who work but cannot afford housing. I could easily be one of them.
Do we deserve the life we make for ourselves?
Maybe, but I think that such an attitude shows some contempt for the poor that is not part of the solution.
Every morning at sunrise I pass groups of people under the over pass packing up their baskets and bags, getting ready for another day of walking the streets collecting recyclables. They are clean, respectful people who are always friendly and I sometime bring them breakfast as well.
They are no different than you or me except they don't complain, they just get on with the business of living.
They are without homes.
If something is not done to help the people who got lousy deals and who are in over their heads, these underpasses will be filled with hundreds maybe thousands more.
Homeless people are not all druggies and madmen. They are families living in cars and many men and women who work but cannot afford housing. I could easily be one of them.
Do we deserve the life we make for ourselves?
Maybe, but I think that such an attitude shows some contempt for the poor that is not part of the solution.
Somebody above mentioned the fines that big banks have had to pay. The number might look large on paper to you or me, but it's a pittance to them. The problem with fining them is, it too will end up being cyclical until something concrete happens to change their lending/loaning practices.
Yeah, yeah, there's been talk that they are going to have to change. They will hold on to their questionable practices until the very last second, just to keep bilking people out of billions and billions of dollars.
Yeah, yeah, there's been talk that they are going to have to change. They will hold on to their questionable practices until the very last second, just to keep bilking people out of billions and billions of dollars.
http://www.cityrating.com/crime-statistics/california/richmond.html#.Ug_vm5KceSo
Thanks for the tip. That adds another Twist to the Saga.
http://www.cityrating.com/crimestatistics/california/richmond.html#.Ug_vm5KceSo
http://www.cityrating.com/crimestatistics/california/richmond.html#.Ug_vm5KceSo
If the banks didn't behave so sickeningly, ( predator loan practices, fraudulent foreclosures, etc) I would probably feel differently about this than I do.
When I heard that 50% of the homes in Richmond were in foreclosure, all I could do was think about how many more homeless people there are while the banks sit on thousands of homes that they won't even put on the market.
Hurray for the mayor for defying the banks and trying to serve the people. That's what our officials are supposed to do, right?
When I heard that 50% of the homes in Richmond were in foreclosure, all I could do was think about how many more homeless people there are while the banks sit on thousands of homes that they won't even put on the market.
Hurray for the mayor for defying the banks and trying to serve the people. That's what our officials are supposed to do, right?
R Glass and Proactive
Thank you for the links and for continuing the discussion.
I have to admit that my reaction to this is visceral (OK kneejerk) becuase I know Richmond, Ca. I'm pretty sure OH and rivll do too.
To call the parts I'm familiar with "hardscrabble" and "working class" is charitable. Sort of like saying SW Detroit is "a little worn around the edges". Just because it's located in California next to the SF Bay doesn't make it Beverly Hills -- more like butt ugly and way too close to way too many refineries. Again, the parts I know. It always has and always will be on the bottom of everyone's 'to do' list.
Something has to be done or it could easily end up like Detroit. If someone has a better answer, I'll listen, At the very least it should open a discussion on what a solution *should* be.
Thank you for the links and for continuing the discussion.
I have to admit that my reaction to this is visceral (OK kneejerk) becuase I know Richmond, Ca. I'm pretty sure OH and rivll do too.
To call the parts I'm familiar with "hardscrabble" and "working class" is charitable. Sort of like saying SW Detroit is "a little worn around the edges". Just because it's located in California next to the SF Bay doesn't make it Beverly Hills -- more like butt ugly and way too close to way too many refineries. Again, the parts I know. It always has and always will be on the bottom of everyone's 'to do' list.
Something has to be done or it could easily end up like Detroit. If someone has a better answer, I'll listen, At the very least it should open a discussion on what a solution *should* be.
The more I read about this, the more “Twist and Turns” it takes. If someone would have wrote a book about this 25 years ago, it would have probably been a Best Seller in Fiction. I really don’t see this happening without it going to the Supreme Court. There is too much at stake. If this was allowed in one city, it would Domino to every city across the Nation.
“Now suppose you're the poor ******* who is making good on your $400K mortgage for an identical house which each of your neighbors on either side have just had their property values reduced to $125K..ahh, tough luck, you were sacrificed for the better good of 600 others(aka the public)”
No problem, all I would have to do is quit making my notes, “the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program.”
The Federal Government would then hold the Deed to my Property!
I’m not so sure I like this idea.
“Now suppose you're the poor ******* who is making good on your $400K mortgage for an identical house which each of your neighbors on either side have just had their property values reduced to $125K..ahh, tough luck, you were sacrificed for the better good of 600 others(aka the public)”
No problem, all I would have to do is quit making my notes, “the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program.”
The Federal Government would then hold the Deed to my Property!
I’m not so sure I like this idea.
and PS: Now suppose you're the poor ******* who is making good on your $400K mortgage for an identical house which each of your neighbors on either side have just had their property values reduced to $125K..ahh, tough luck, you were sacrificed for the better good of 600 others(aka the public)
"Who in their right mind would give this person a loan for a New Car?"
Mortgage Resolution Partners
. I do agree on the lack of press considering the ramifications, of course the government still owns fannie and freddie, helped close the deficit gap remember.
I said I wouldn't and I did....errrrrrrr :*)
I thought this was a good informative article.
http://www.nytimes.com/2013/07/30/business/in-a-shift-eminent-domain-saves-homes.html?pagewanted=1&_r=0&hp
They could have left out “But local officials, frustrated at the lack of large-scale relief from the Obama administration”. I haven’t seen a direct quote from any Local Official, blaming Obama. If they do blame him, just what kind of “large-scale relief” are they expecting?
http://www.nytimes.com/2013/07/30/business/in-a-shift-eminent-domain-saves-homes.html?pagewanted=1&_r=0&hp
They could have left out “But local officials, frustrated at the lack of large-scale relief from the Obama administration”. I haven’t seen a direct quote from any Local Official, blaming Obama. If they do blame him, just what kind of “large-scale relief” are they expecting?
I can't stop thinking about this. Apparently this is quite a big deal that for some reason is not getting much media coverage. If someone can find any Mainstream media coverage, please post it.
Federal Housing Finance Agency threatens to curtail lending in cities, including Richmond, Calif., that resort to eminent domain.
The nation’s top housing finance regulator threatened to choke off mortgage lending in cities that use eminent domain to seize underwater loans from lenders.
The salvo from the Federal Housing Finance Agency came Thursday, on the heels of a lawsuit directed by major Wall Street firms and U.S.-sponsored mortgage giants Fannie Mae and Freddie Mac against the Bay Area city of Richmond.
Richmond is the first to push forward with the plan, also being debated in cities across the state and nation. Richmond wants to require lenders and investors to sell underwater mortgages at a deep discount. The city would then refinance borrowers into more-affordable mortgages.
The federal housing agency, which regulates Fannie and Freddie, on Thursday made clear it doesn’t intend to let this happen. The agency said it would instruct Fannie and Freddie to “limit, restrict or cease business activities” in any jurisdiction using eminent domain to seize mortgages.
The move would be a “huge blow” to the city of Richmond, said Guy Cecala, publisher of Inside Mortgage Finance.
“It is pretty much a death sentence these days in terms of mortgage financing,” Cecala said. “It is sort of an atom bomb solution, and the real question is would they pull the trigger on it, or is it just a threat? But it is the kind of thing they could do fairly quickly.”
Executives and legal counsel for Fannie Mae and Freddie Mac also singled out the eminent domain plan this week during conference calls with journalists to discuss second-quarter financial results.
The use of eminent domain is “a serious issue that has the potential to unsettle investors in mortgage securities,” Fannie Mae Chief Executive Timothy J. Mayopoulos said Thursday.
On Wednesday, the two mortgage giants joined with big bondholders in suing Richmond, seeking an injunction against the city and its private partner, Mortgage Resolution Partners. The city’s program could cause investors losses of $200 million or more if the plan goes forward, the lawsuit said.
The other bondholders directing that suit include Newport Beach-based Pacific Investment Management Co., BlackRock Inc. of New York and DoubleLine Capital of Los Angeles. In a separate action filed in the same San Francisco court Wednesday, the Bank of New York Mellon also sued the city and Mortgage Resolution Partners.
Eminent domain is typically used to seize land, not loans, usually to take over blighted property or land needed for projects such as a highway. But the unorthodox plan by Mortgage Resolution Partners would use the power to force private investors to sell mortgages.
Mortgage Resolution Partners first marketed the plan last year to San Bernardino County and two of its cities, Fontana and Ontario. The firm is now contracting with the city of Richmond to implement the strategy.
Other cities considering the proposal include El Monte, which weighed the idea behind closed doors during a City Council meeting Tuesday. At least three other California municipalities — La Puente in Los Angeles County, and Orange Cove and San Joaquin in Fresno County — are also consulting with Mortgage Resolution Partners. Half a dozen other California cities have had less formal discussions with the firm.
North Las Vegas, Nev., has also approved a similar plan, and Seattle and Newark are also considering adopting the measure, according to Mortgage Resolution Partners.
That makes the working-class city of Richmond, situated just north of Berkeley in the East Bay, an important test case. The hardscrabble town of 106,000 people has sizable black and Latino populations and was hard hit by the housing crisis, with homeownership rates well below the national average.
Even with prices rebounding in Richmond, many residents still struggle with outsized mortgage payments, said Richmond Mayor Gayle McLoughlin.
“The fact these threats are being put out there are very, very disturbing — but we are not afraid to go to court,” McLoughlin said. “We are looking forward to it, because we think fully that our legal reasoning will win.”
Cornell Law professor Robert C. Hockett, who advised Mortgage Resolution Partners on the proposal, said that the federal housing finance agency was acting outside of its authority by issuing its threats.
“How many times must it be repeated that principal write-downs on deeply underwater mortgage loans increase the value of the loans — even while keeping homeowners in their homes and communities intact?” Hockett said. “This is not only illegal, it is disgusting.”
In their suit, the mortgage holders acting on behalf of Fannie, Freddie and Wall Street firms argue that the eminent domain plan violates the law on a number of grounds. The suit argues that the plan targets mortgages for a purely private use, which is a violation of the takings clause of the U.S. Constitution, the California Constitution and of eminent domain law.
By reaching beyond the city’s borders to take control of loans, the city also may be violating due process requirements. And, the suit argues, by rewriting mortgage contracts, the program violates the interstate commerce clause of the U.S. Constitution, likely resulting in major harm to the national mortgage and housing industries.
Also, by eradicating the debts of some local residents at the expense of out-of-state creditors, the plan would also violate the contract clause of the U.S. Constitution, the suit alleges.
“Under this scheme, 100% of the cost will be borne by pensioners, savers and in some cases, the taxpayers who currently own these mortgage backed securities,” said John Ertman, a lawyer at Ropes & Gray in New York who is acting as counsel to the firms behind the suit. “A hundred percent of the profit will be split between [Mortgage Resolution Partners] and the city of Richmond.”
http://www.popularresistance.org/feds-threatens-to-stop-lending-to-cities-that-use-eminent-domain-to-help-homeowners/
Federal Housing Finance Agency threatens to curtail lending in cities, including Richmond, Calif., that resort to eminent domain.
The nation’s top housing finance regulator threatened to choke off mortgage lending in cities that use eminent domain to seize underwater loans from lenders.
The salvo from the Federal Housing Finance Agency came Thursday, on the heels of a lawsuit directed by major Wall Street firms and U.S.-sponsored mortgage giants Fannie Mae and Freddie Mac against the Bay Area city of Richmond.
Richmond is the first to push forward with the plan, also being debated in cities across the state and nation. Richmond wants to require lenders and investors to sell underwater mortgages at a deep discount. The city would then refinance borrowers into more-affordable mortgages.
The federal housing agency, which regulates Fannie and Freddie, on Thursday made clear it doesn’t intend to let this happen. The agency said it would instruct Fannie and Freddie to “limit, restrict or cease business activities” in any jurisdiction using eminent domain to seize mortgages.
The move would be a “huge blow” to the city of Richmond, said Guy Cecala, publisher of Inside Mortgage Finance.
“It is pretty much a death sentence these days in terms of mortgage financing,” Cecala said. “It is sort of an atom bomb solution, and the real question is would they pull the trigger on it, or is it just a threat? But it is the kind of thing they could do fairly quickly.”
Executives and legal counsel for Fannie Mae and Freddie Mac also singled out the eminent domain plan this week during conference calls with journalists to discuss second-quarter financial results.
The use of eminent domain is “a serious issue that has the potential to unsettle investors in mortgage securities,” Fannie Mae Chief Executive Timothy J. Mayopoulos said Thursday.
On Wednesday, the two mortgage giants joined with big bondholders in suing Richmond, seeking an injunction against the city and its private partner, Mortgage Resolution Partners. The city’s program could cause investors losses of $200 million or more if the plan goes forward, the lawsuit said.
The other bondholders directing that suit include Newport Beach-based Pacific Investment Management Co., BlackRock Inc. of New York and DoubleLine Capital of Los Angeles. In a separate action filed in the same San Francisco court Wednesday, the Bank of New York Mellon also sued the city and Mortgage Resolution Partners.
Eminent domain is typically used to seize land, not loans, usually to take over blighted property or land needed for projects such as a highway. But the unorthodox plan by Mortgage Resolution Partners would use the power to force private investors to sell mortgages.
Mortgage Resolution Partners first marketed the plan last year to San Bernardino County and two of its cities, Fontana and Ontario. The firm is now contracting with the city of Richmond to implement the strategy.
Other cities considering the proposal include El Monte, which weighed the idea behind closed doors during a City Council meeting Tuesday. At least three other California municipalities — La Puente in Los Angeles County, and Orange Cove and San Joaquin in Fresno County — are also consulting with Mortgage Resolution Partners. Half a dozen other California cities have had less formal discussions with the firm.
North Las Vegas, Nev., has also approved a similar plan, and Seattle and Newark are also considering adopting the measure, according to Mortgage Resolution Partners.
That makes the working-class city of Richmond, situated just north of Berkeley in the East Bay, an important test case. The hardscrabble town of 106,000 people has sizable black and Latino populations and was hard hit by the housing crisis, with homeownership rates well below the national average.
Even with prices rebounding in Richmond, many residents still struggle with outsized mortgage payments, said Richmond Mayor Gayle McLoughlin.
“The fact these threats are being put out there are very, very disturbing — but we are not afraid to go to court,” McLoughlin said. “We are looking forward to it, because we think fully that our legal reasoning will win.”
Cornell Law professor Robert C. Hockett, who advised Mortgage Resolution Partners on the proposal, said that the federal housing finance agency was acting outside of its authority by issuing its threats.
“How many times must it be repeated that principal write-downs on deeply underwater mortgage loans increase the value of the loans — even while keeping homeowners in their homes and communities intact?” Hockett said. “This is not only illegal, it is disgusting.”
In their suit, the mortgage holders acting on behalf of Fannie, Freddie and Wall Street firms argue that the eminent domain plan violates the law on a number of grounds. The suit argues that the plan targets mortgages for a purely private use, which is a violation of the takings clause of the U.S. Constitution, the California Constitution and of eminent domain law.
By reaching beyond the city’s borders to take control of loans, the city also may be violating due process requirements. And, the suit argues, by rewriting mortgage contracts, the program violates the interstate commerce clause of the U.S. Constitution, likely resulting in major harm to the national mortgage and housing industries.
Also, by eradicating the debts of some local residents at the expense of out-of-state creditors, the plan would also violate the contract clause of the U.S. Constitution, the suit alleges.
“Under this scheme, 100% of the cost will be borne by pensioners, savers and in some cases, the taxpayers who currently own these mortgage backed securities,” said John Ertman, a lawyer at Ropes & Gray in New York who is acting as counsel to the firms behind the suit. “A hundred percent of the profit will be split between [Mortgage Resolution Partners] and the city of Richmond.”
http://www.popularresistance.org/feds-threatens-to-stop-lending-to-cities-that-use-eminent-domain-to-help-homeowners/
I know, I know. The point being as I believe some have agreed, it takes more than one to tango. There were the lenders, the buyers, the agents, the investors who purchased the packaged mortgages,the federal reserve and the admins, fact is, everyone can not purchase a home...This story goes on and on, tulip mania, the dotcom bust..people win and lose,history repeats.
Pawnshops have been around as long as prostitutes, buyer beware.
The banks have paid a stiff penalty, is it enough yet, we'll see.
My money is on Xerox's comeback
.....and my box of Crown Pilot chowder crackers, air tight packaged..Will those crackers be worth more than the $2.99 I paid-- a collectors item down the road (LOL, you have to know Maine clam chowder and the revolt to get this humor)...., buyer beware!
Pawnshops have been around as long as prostitutes, buyer beware.
The banks have paid a stiff penalty, is it enough yet, we'll see.
My money is on Xerox's comeback
.....and my box of Crown Pilot chowder crackers, air tight packaged..Will those crackers be worth more than the $2.99 I paid-- a collectors item down the road (LOL, you have to know Maine clam chowder and the revolt to get this humor)...., buyer beware!
Wasn't the Daddy, she's Hard Headed like her Momma, there was nothing I could do to stop it. At the time she was going to College and living at my house (no charge/no problem). Now the Dealership (Dealer) didn't know this or cared, they just wanted to sell a Car. If she would have had to pay rent she would not have been able to make the payments. They would have approved the loan regardless. Keep in mind, she had no credit history, lack of income, and going to College. Who in their right mind would give this person a loan for a New Car?
" I wasn’t concerned because I knew there was no way she could get a loan without me co-signing."
Then who is to blame?
The daughter (to her credit, paid it off)?
The dealer?
Or the Daddy?
Then who is to blame?
The daughter (to her credit, paid it off)?
The dealer?
Or the Daddy?
Agree the blame should fall squarely on both sides. Just a little more ticked at the banks because they do this every day and for a lot of people buying a house is a once in a lifetime thing and they think some law or government agency is supposed to protect them from predators.
Also there's been a lot of whistleblowing going on lately that banks are intentionally misleading borrowers into foreclosure.
Also there's been a lot of whistleblowing going on lately that banks are intentionally misleading borrowers into foreclosure.
I’m not sure how I feel about “Eminent Domain”. As long as the City Richmond can afford it (I doubt it, “ We had 900 foreclosures last year and just as many in the pipeline this year”) and it doesn’t involve Federal Tax Dollars, it’s of no concern to me.
“ I look at Richmond's actions as a junkie would for a quick fix. You are kidding yourself if you believe this is a solution to the problem.
At some point the individual has to be held accountable for their own actions..Let's remember, they signed their legal mortgage agreements.
They bought a property they could not afford.”
I see your point, but I think both should be held accountable. I like the phrase “"The banks sold our community predatory loans,”. It’s like, who’s more at fault, the Dealer that sold to the Junkie or the Junkie that bought from the Dealer?
A few years ago, one of my daughters wanted a new car. My argument that purchasing a New Car was throwing money away and she could save a lot of money by buying a slightly used car, fell on deaf ears. I wasn’t concerned because I knew there was no way she could get a loan without me co-signing. She had no credit history and lack of income. A couple of days later, she walked into my house and said, “come see my New Car!” She made all of the payments but there is no way she should have been approved for a loan. She was excited and I pretended to be. I wanted so bad to ask her what her interest rate was but, why ruin her day?
“ I look at Richmond's actions as a junkie would for a quick fix. You are kidding yourself if you believe this is a solution to the problem.
At some point the individual has to be held accountable for their own actions..Let's remember, they signed their legal mortgage agreements.
They bought a property they could not afford.”
I see your point, but I think both should be held accountable. I like the phrase “"The banks sold our community predatory loans,”. It’s like, who’s more at fault, the Dealer that sold to the Junkie or the Junkie that bought from the Dealer?
A few years ago, one of my daughters wanted a new car. My argument that purchasing a New Car was throwing money away and she could save a lot of money by buying a slightly used car, fell on deaf ears. I wasn’t concerned because I knew there was no way she could get a loan without me co-signing. She had no credit history and lack of income. A couple of days later, she walked into my house and said, “come see my New Car!” She made all of the payments but there is no way she should have been approved for a loan. She was excited and I pretended to be. I wanted so bad to ask her what her interest rate was but, why ruin her day?
If you loan money with insufficient collateral, who hasn't done their due diligence? I'm not a financial genius, simply someone who used to help build houses, but up until '07, even I could see that houses were being sold and financed at a price that was inflated by sometimes over 100% of actual value. Way over 100% in cases where unlicensed craftsmen were doing mechanical and electrical work, structural work was shoddy, and inspections were either rubber stamped or completely absent.
The holders of these mortgages are being given a chance to revisit the deal and work out new terms based on something closer to the actual value of these properties (still overvalued in my opinion) before eminent domain is used.
If the people trying to make payments on these properties are foreclosed on, they become renters. Every time this happens, our country becomes a little more stratified and moves closer to being a nation where a very tiny percentage of the populace actually own things and the rest are serfs.
And that never ends well.
The holders of these mortgages are being given a chance to revisit the deal and work out new terms based on something closer to the actual value of these properties (still overvalued in my opinion) before eminent domain is used.
If the people trying to make payments on these properties are foreclosed on, they become renters. Every time this happens, our country becomes a little more stratified and moves closer to being a nation where a very tiny percentage of the populace actually own things and the rest are serfs.
And that never ends well.
Here we go again, "please sir, will you take away more of my rights"
I worked for a large municipality years ago, using eminent domain for large public works projects (water/sewer) at times.
This new take is an egregious use of eminent domain, an assault on ownership rights.
I look at Richmond's actions as a junkie would for a quick fix. You are kidding yourself if you believe this is a solution to the problem.
At some point the individual has to be held accountable for their own actions..Let's remember, they signed their legal mortgage agreements.
They bought a property they could not afford. They either failed to do their own due diligence or failed to hire someone who would do it for them, ie. in their interests.
One and only post on this subject, just thinking about it PMO! :*)
I worked for a large municipality years ago, using eminent domain for large public works projects (water/sewer) at times.
This new take is an egregious use of eminent domain, an assault on ownership rights.
I look at Richmond's actions as a junkie would for a quick fix. You are kidding yourself if you believe this is a solution to the problem.
At some point the individual has to be held accountable for their own actions..Let's remember, they signed their legal mortgage agreements.
They bought a property they could not afford. They either failed to do their own due diligence or failed to hire someone who would do it for them, ie. in their interests.
One and only post on this subject, just thinking about it PMO! :*)
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