cawacko
Well-known member
This is just a bad precedent imo if this goes forward and does no favors for those who want to move to Richmond in the future.
Richmond first to jump into eminent domain battle
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 in a conference call Tuesday.
On Monday the city sent letters to 32 investors - largely private-label security trusts - offering to buy 626 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 80 percent of the homes' market value.
The city would then help the underwater homeowners refinance into mortgages in line with their homes' current worth.
Wall Street vehemently opposes the untested idea, claiming it violates property rights and would have a chilling effect on future mortgages in Richmond while leading 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.
Banks have already said that 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 it's something the city would fight.
"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 or ask for a discount?"
Richmond has partnered with San Francisco firm Mortgage Resolution Partners on the plan. MRP will provide funds to acquire the mortgages, and then will help the homeowners refinance into loans backed by the Federal Housing Administration. It would receive a flat fee of $4,500 per mortgage.
The recent surge in home values hasn't had a big impact on Richmond, where 47 percent of mortgages are 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. I will never own this home under the current conditions."
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 judge to establish what a fair price would be.
Richmond and MRP 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 the 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.
MRP has also said it will handle all legal costs - which could be substantial.
http://www.sfgate.com/business/article/Richmond-first-to-jump-into-eminent-domain-battle-4695857.php
Richmond first to jump into eminent domain battle
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 in a conference call Tuesday.
On Monday the city sent letters to 32 investors - largely private-label security trusts - offering to buy 626 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 80 percent of the homes' market value.
The city would then help the underwater homeowners refinance into mortgages in line with their homes' current worth.
Wall Street vehemently opposes the untested idea, claiming it violates property rights and would have a chilling effect on future mortgages in Richmond while leading 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.
Banks have already said that 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 it's something the city would fight.
"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 or ask for a discount?"
Richmond has partnered with San Francisco firm Mortgage Resolution Partners on the plan. MRP will provide funds to acquire the mortgages, and then will help the homeowners refinance into loans backed by the Federal Housing Administration. It would receive a flat fee of $4,500 per mortgage.
The recent surge in home values hasn't had a big impact on Richmond, where 47 percent of mortgages are 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. I will never own this home under the current conditions."
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 judge to establish what a fair price would be.
Richmond and MRP 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 the 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.
MRP has also said it will handle all legal costs - which could be substantial.
http://www.sfgate.com/business/article/Richmond-first-to-jump-into-eminent-domain-battle-4695857.php
