Richmond, CA Hoping Eminent Domain Helps Stem Tide of Foreclosures
Other cities look on as risky attempt to save families within city begins
Richmond California, for example, holds a staggering 46% of homes that are still 'underwater,' which means the owners owe on the mortgage at a level higher than the house is actually worth. The communities affected in this way needed a solution to prevent such sweeping problems years ago. Now, the foreclosures and the neighborhoods themselves are ultimately doomed to fail as it currently stands.
It now appears the only answer to the troubles: Eminent domains. “The banks aren’t helping us, so we’re stepping into the void and making it happen ourselves,” said Richmond Mayor Gayle McLaughlin.
McLaughlin became the first mayor to take a stand and step in to use eminent domain, seizing mortgages from the lien holder in order to sell them back to the homeowner within an affordable rate. The maneuver gave the principal reduction that will now allow such individuals to stay in his/her home over the long-term, which is something that could not have been done prior.
Other cities have been considering the same move as McLaughlin, which is controversial and somewhat dangerous from a political standpoint. The concept uses capital funding from forprofit investment firms called “Mortgage Resolution Partners” (MRP), but the Richmond area has purchase offers on over 600 loans. The services had to agree on discounted prices, while the MRP and the city of Richmond determined an appraisal rate from a third party.
Now, other cities are looking at what Richmond is doing, to note the quality or consequences of the strategy.
What complicates the matter is that of the 624 loans Richmond offered to purchase, nearly two thirds of them are performing mortgages. Currently being underwater means such families are still within risk for delinquencies in the future.
“You look to the borrower payment stream as the primary source of value,” argues Yves Smith of Naked Capitalism, a critique of the Mortgage Resolution Partners approach. “These are borrowers who are clearly committed to keeping their homes and have income to do so.”
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