Not for sale

Richmond to seize hundreds of mortgage loans from banks to revive its communities

|
(59)
Guardian photo by Brittany M. Powell

news@sfbg.com

From the Chevron refinery explosion to deepening pain of the housing crisis, the city of Richmond has endured a lot.

Walk through Richmond's Iron Triangle neighborhood and the signs of economic turmoil are everywhere. Homes there have been foreclosed or abandoned for years. Some windows are boarded up, others shattered. In lieu of decorations, signs bearing "DO NOT ENTER" warnings are posted on every other door. Bedding peeks out from beneath one of the abandoned homes.

Despite the neighborhood's struggle, life goes on.

Families still live here. Just around the corner from the worst of the crumbling houses children ran after an ice cream truck, whose music could be heard blocks away. The ice cream man, Ank Talwar, said that the crumbling neighborhood had seen progress.

"It's better than before," he told the Guardian. Speaking through a metal barricade in his window, he said five years ago the neighborhood was nearly uninhabitable due to crime.

It's that tenuous progress that Richmond Mayor Gayle McLaughlin points to when justifying Richmond's controversial plan to use eminent domain to seize over 600 underwater mortgages, which would allow families to make payments to the city instead of the banks.

The most important aspect of this plan, she says, is that those families get to stay in their homes.

 

DESPERATE TIMES

When Richmond's plan to use eminent domain to seize mortgages was first unveiled, it triggered a national debate. It's a legal tactic typically used by governments to seize land needed for public use — parks, freeways, or other major infrastructure projects.

The seizure plan's opponents say that this is a twisted use of eminent domain and a government overreach meant to siphon money rather than benefit the public good. But however one views the city's solution, nobody can argue that the underwater mortgages haven't caused trouble for Richmond.

In a legal declaration, City Manager William Lindsay detailed the lingering pain in the wake of the housing crisis.

"According to the city's research, Richmond has one of the worst situations in the country, with approximately 51 percent of homeowners underwater on mortgage debt," he wrote. In the past three years, Richmond has been slammed by more than 2,000 foreclosures.

Like a spreading infection, the disease of debt doesn't just affect homeowners.

There are hundreds of vacant homes in Richmond, Lindsay wrote, attracting rats, criminals, and dumping from neighbors. One of the abandoned properties the Guardian visited had a sea of garbage that filled the entire yard: mattresses, broken televisions, baby seats, and other abandoned items.

Property values took a hit too, which Lindsay wrote had a "catastrophic impact" on Richmond's tax base, declining from $48 million in 2007 to $41 million in 2012, a more than 14 percent decrease. Lowered tax revenue forced Richmond to cut its city staff by about 200 workers.

Families were losing their homes, neighbors were living in wrecked neighborhoods, and the city hemorrhaged money. To put it bluntly, Richmond was desperate.

That's where Mortgage Resolution Partners came in.

Comments

Posted by Guest on Sep. 03, 2013 @ 4:20 pm

taking and, moreover, one that effectively steals value from the legal owners of an obligation.

I have no problem with Richmond offering to buy mortgages and refinance them, if the voters and taxpayers of the city approve that. But using eminent domain to force owners to accept offers that are way below market is stretching the idea of eminent domain into a legalized mugging, and the courts will bounce this.

Posted by Guest on Sep. 03, 2013 @ 4:28 pm

underwrite their muni bonds. Must be a coincidence huh?

Posted by Guest on Sep. 03, 2013 @ 4:30 pm

house until the sale is complete, the lender gets a market rate for the loan, and a new owner gets a bargain.

Anything else is financial engineering, which is what got us into this mess in the first place. This Richmond idea is horrible and, almost definitely, illegal.

Posted by Guest on Sep. 03, 2013 @ 4:34 pm

Sorry but it is. I feel bad for people that are underwater and in trouble- I truly do. However, the reality is that they took out the loans- in many cases they took cold cash out to use for various things, now they get a sweet deal and the banks either get forced to take a lower price or risk this eminent domain BS. Totally wrong. ED is fine if you are building a road etc., not because your citizens made poor choices.

Posted by Whackamole on Sep. 04, 2013 @ 8:18 am

loans must have known they were too good to be true, that their home value and earnings could not justify it, and that they would never be able to pay them back.

To try and bail them out by stealing from those who trusted them enough to lend them money is wrong, and I feel sure the courts will reject this as a taking.

I recall a case in SF where the woman had owned the home since the 1970's, during which time it had increased tenfold in value, and the owner continually took cash-out HELOC's to feed her spending habits while the loan got bigger and bigger. Then she tried to fight foreclosure.

The best way to get the housing market back on it's feet is to foreclose these homes and then sell them to those who can actually afford them. There are signs that Bay Area RE is rebounding with prices up 12% in the last year, so in fact we may only have to wait and do nothing.

Posted by Guest on Sep. 04, 2013 @ 8:33 am

yes, and those poor helpless banks simply had no choice but to lend money to people with insufficient income, assets, and I'll guess financial literacy. it takes two to tango baby. and i'm going to say that the banks were the lead partner in that dance.

Posted by MossyBuddha on Sep. 04, 2013 @ 11:11 am

Take away the greed of these borrowers, and the banks could never have made those loans.

Posted by Guest on Sep. 04, 2013 @ 11:28 am

> "Take away the greed of these borrowers, and the banks could never have made those loans. "

Oh, PLEASE!! "Greed of the borrowers" ?? The banks seem to be doing just fine, now that they got BAILED out with our money, and then gave themselves bonuses.

Posted by Arbusto on Sep. 05, 2013 @ 2:22 pm

there is little question that the banks could have done none of these things if not for the suspension of disbelief by borrowers who thought they could dine out forever using their house as an ATM.

I have little sympathy for a borrower who borrowed 120% of the value of the hope, with no down, on interest only or neg-am terms, and thought that was a prudent move.

Posted by Guest on Sep. 05, 2013 @ 2:41 pm

From Joe Stiglitz talking about international debt crises, which is perfectly apt in this case. "In debt crises, blame tends to fall on the debtors. They borrowed too much. But the creditors are equally to blame – they lent too much and imprudently. Indeed, lenders are supposed to be experts on risk management and assessment, and in that sense, the onus should be on them. The risk of default or debt restructuring induces creditors to be more careful in their lending decisions."

Read more at http://www.project-syndicate.org/commentary/argentina-s-debt-and-america...

Posted by MossyBuddha on Sep. 06, 2013 @ 8:45 am

professionals and experts agree that we cannot simply bail out every homeowner. And if we did, then we would have to bail out the banks again as they are the ones who would be taking the hit on these loans if the courts do not reject Richmond's idea.

In the end, there just isn't enough money to bail out everyone, so there has to be pain.

Posted by Guest on Sep. 06, 2013 @ 9:02 am

I wonder how many of the applications for the loans were straight up fraudulent?

Posted by Guest on Sep. 07, 2013 @ 8:39 am

They exaggerated incomes, and borrowed the down payments while claiming they were their own assets. Of course, they ay have been encouraged to lie by realtors and brokers looking for a deal.

But the main thing borrowers did wrong was simply not use common sense. If you make 50K a year then you should not borrow 500K to buy a home even if someone tells you that everything will be fine.

I suspect the average IQ of these borrowers was around the temperature of the average living room.

Posted by Guest on Sep. 07, 2013 @ 8:52 am

article goes on to say that it is still going through the political process and that lawsuits have been filed to stop it proceeding. So why is your headline so misleading, Joe? No homes have been seized as of this point in time.

I have no problem with Richmond buying these homes or mortgages in the free market, but should not be picking sides in legal disputes between lender and borrower. Each case is different and any policy that treats them all the same is disturbingly interventionist.

While eminent domain for this is overkill and almost certainly unconstitutional.

Posted by anon on Sep. 04, 2013 @ 10:16 am

.... good catch. I updated the subhead to reflect the story. As many have reporters have said, "I don't write the headlines!"

But I appreciate the help.

Posted by Joe Fitzgerald on Sep. 04, 2013 @ 3:03 pm

A: Eminent domain allows the public to take private property for a broad definition of public use
B: Mortgage assets are considered private property owned by banks and non-bank financial entitites

sounds to me like eminent domain can be used to take mortgages...

Posted by MossyBuddha on Sep. 04, 2013 @ 10:41 am

invariably wrong when the issues raised are complex.

While eminent domain allows municipalities to compulsorily purchase assets, that has typically only been done for new development. It has never been mooted for purely ideological purposes, nor has it ever been done to favour one group of Americans over another.

And it's not a takeover of mortgage assets but a takeover of the underlying assets as well. and not for a fair market value but on the cheap. It's like a guy coming up to you in the street, pointing a gun at your head, and demanding that you sell him your iphone for a nickel.

Posted by Guest on Sep. 04, 2013 @ 11:15 am

then home values would increase, which would solve this problem without all this class warfare rhetoric.

But of course that would be hard to do so, instead, a political gesture.

If you ever wondered what the Greens would be like if they ever had any power, this clueless initiative tells it in spades. Thank God I don't live in Richmond.

Posted by Guest on Sep. 04, 2013 @ 11:33 am

Whatta mean, you won't give me a mortgage?

Posted by Confused Richmond Resident on Sep. 04, 2013 @ 11:42 am

Freddie and Fannie will not work with Richmond if this goes through, meaning that anyone wanting to buy a home in Richmond will be frozen out of the mortgage market, and/or will have to pay much higher rates than in neighboring towns.

Posted by anon on Sep. 04, 2013 @ 12:15 pm

... a lot of different efforts to stop this, and to encourage this, on both sides. To include every solitary aspect of this battle would require a novel. I included the full text of Wells Fargo's complaint embedded in the article, which outlines many of the issues talked about by the Fannie and Freddie arguments.

Additionally, we have a planned follow up piece that will look more at the opposition, from Fannie and Freddie to a local angle with Nat Bates, who plans to oppose eminent domain on a city level on September 10. Rest assured, there'll be more coverage of the opposition then.

Posted by Joe Fitzgerald on Sep. 04, 2013 @ 3:08 pm

The Fannie/Freddie angle is important because if they red-line Richmond, then the city will become a no-go area for home-buyers, with disastrous results. That old law of unintended consequences again.

That Bates guy who opposes this idea has discovered that the 600 loans have not been chosen at random but rather to profit the city by being highly selective and discriminatory. That, if true, is a crushing indictment of the idea.

Posted by Guest on Sep. 04, 2013 @ 7:07 pm

for starters, I question whether this is a proper use of Eminent Domain. But put that aside for a second.

Richmond has made "offers" to homeowners that are, on average, over 25% LESS than what MRP had determined was the properties' fair market values. Isn't ED based on the presumption that the owner of the property that was going to be taken was to get Fair Market Value for it? So why the lowballing? Oh yeah, so that MRP would definitely get their piece of the pie, $4500 per transaction. This for an entity that has no skin in the game and is taking on no risk.

Has the City of Richmond gone to market to see if other entities would do this for less money than MRP? Not that I know of. Great business for MRP, I guess being a Rhodes Scholar has its privileges.

And oh yeah, lets not forget that, according the the Wall Street Journal, more than 2/3's of the properties Richmond is attempting to take by Eminent Domain are current on their payments!

This whole thing just sounds like a true clusterf**k, and the litigation costs are going to be abysmal for Richmond.

Posted by Guest on Sep. 04, 2013 @ 1:25 pm

the city would not be buying the homes, which would remain on title to the underwater borrower. Rather they would be buying the loan. And that is another big problem, as eminent domain has never been used to buy purely financial assets and that alone is reason to believe that the courts will bounce this.

Posted by Guest on Sep. 04, 2013 @ 1:37 pm

loans, mortgages, stocks, liens, contracts have all been condemned under Eminent Domain, and have been since before the Civil War.

The Oakland Raiders case from a few years ago had a laundry list of "things" that can be taken.

Posted by Guest on Sep. 04, 2013 @ 2:28 pm

any and all assets in such an indiscriminate way, cherry-picking the good loans and of course ignoring the bad ones.

If Richmond really believes in this then why don't they buy only the very worst loans?

That is why the FHA have already banned Fannie and Freddie from dealing with these loans, which at a stroke makes owning a home in Richmond far too risky and expensive. Well done, Greens.

Posted by Guest on Sep. 04, 2013 @ 2:36 pm

It’s not fair to blame the Greens for this. The media likes to make a big deal out of the political party affiliation of our Mayor but this has nothing to do with her political party.

If you want to assess blame, it’s the Richmond progressives who are leading the charge here.

Liberalism and progressiveism took a sharp turn to the left a few years back. Some of who used to be considered pretty liberal are now looked down on by the new progressives as if we were Karl Rove. It’s this uberliberalism that’s making liberals look bad.

And by the way, it’s not as thought the few people on the Council really talk to the public at large before taking such actions. They even boast that they refuse to listen to those that disagree with them. You ought to see them up on the dais when the naysayers rise to speak. They talk amongst themselves, rarely even look at the speakers they disagree with and make a mockery of the fact that they swore to represent us all.

Posted by Don Gosney on Sep. 06, 2013 @ 11:30 am

You see this in the way moderates are hounded and stalked here, even though the views they express are liberal by national standards.

And of course communist nations have long restricted free speech as the model is too fragile to allow for any criticism.

Posted by Guest on Sep. 08, 2013 @ 1:25 pm

the solidly left editors of the SF Guardian seem to be (in my view foolishly) tolerating your pathetic right wing knee-jerk ass all the fuck over its blog pages, on a nearly constant basis

that pretty securely puts the lie to your bullshit comment

if anything, one of the left's biggest flaws is that it bends over backwards to tolerate idiot debate with right wing neanderthals like you, as if it is legitimate, when in reality (contrary to your repeated claims otherwise) the vast majority of people (even in the United States) do not think or operate via the juvenile thought process and cartoonish Ayn Rand style ideology that you embody

Posted by anonymous xXx on Sep. 08, 2013 @ 4:32 pm

you and the other intolerant lefties here want to end that, showing your true colors.

Posted by Guest on Sep. 08, 2013 @ 4:43 pm
Posted by anonymous xXx on Sep. 08, 2013 @ 5:02 pm

assets they requisition, otherwise they could buy all our assets at a discount, which is unconstitutional.

Richmond is trying to buy these assets on the cheap. And they are doing so thru a for-profit entity which has been funded by hedge funds. Strange bedfellows you've got there.

Posted by anon on Sep. 04, 2013 @ 2:44 pm

SO wrong for the Richmond mayor/city counsel to do this! This proposal will KILL the city's hope of ever getting better.

Where is all the money that these homeowners got from their 2nd mortgage, Spending over budget, Spending money they didn't have.

IF the real estate market had went the other way, would these homeowners GIVE their profits to the city of Richmond? Or do handouts and breaking contracts go only ONE WAY.

Socialism does not work. Communism does not work.

If you can't pay your bills, then move. Or get other jobs.
Simply Economics. Supply and Demand economics.

Save Richmond -- by electing other, smarter people!

Posted by StopRichmondPoliticians on Sep. 05, 2013 @ 12:30 am

One thing we hear so often in Richmond by the people who want to bring down the banks and businesses that operate in Richmond is that “we need it more than they do.”

Sounds kind of like something from the old Robin Hood School of Economics.

I suppose that if I broke into one of their homes and walked off with their big flat screen TV I could always justify it by saying that I needed it more than they did.

Posted by Don Gosney on Sep. 06, 2013 @ 11:33 am
Posted by Guest on Sep. 06, 2013 @ 1:59 pm

I happen to be a Richmond home owner who is not underwater. I own my home outright. Yet I am totally in favor of this plan. Why? Because my neighborhood is going downhillwith each foreclosure. Why not use ED to save the neighborhood? Is that not in the public interest? What solution do the banks propose? And to the person who said our Green Party mayor should focus on crime, not mortgage relief, you are not up to date on Richmond crime statistics. Since the Richmond Progressive Alliance has been winning elections, the crime rate has plummeted.

I would hate to see this ED plan scuttled by Wall Street...we have enough interference from Chevron money distorting Richmond's attempts to resolve our local problems. (And in case you're wondering where the council opposition to ED comes from, Nat Bates is bought and paid for by Chevron.)

Posted by Guest on Sep. 05, 2013 @ 3:04 pm

That's like me saying that the government should bail out Citi because I happen to hold shares in Citi. That's no basis for public policy, and certainly not for spending other peoples' money.

And how difficult do you think it will be to get a mortgage in Richmond if this goes through?

Posted by Guest on Sep. 05, 2013 @ 3:29 pm

I totally I agree. I am also a Richmond homeowner who is not underwater but whose neighborhood is going down due to foreclosures. We suffer as a community due to loss of resources, city government (due to decline in revenue) increased dumping, vagrancy in foreclosed properties and decreased home values... it is definitely a public good to stop the foreclosures in a smart way by focusing on those homeowners who are underwater but given a principle reduction could actually maintain a new reduced principle mortgage. Save those who can be saved, strengthen the whole community and the tax vase - return resources and services while stabilizing working families. It is a brilliant and necessary plan.

Posted by Guest on Sep. 05, 2013 @ 9:16 pm
Posted by Guest on Sep. 06, 2013 @ 2:00 pm

While VIOLENT crime may be down, we’re still the #1 Auto Theft city in the nation!

http://www.mercurynews.com/ci_23537357/auto-thefts-plague-bay-area

And start talking to your neighbors about home and auto break-ins. [That is, of course, unless you live in the Point or the Marina where crime is not allowed.]

Since April of last year my car has been broken into three times and my home broken into and invaded twice. Don’t you dare try to claim that crime is down in Richmond. It’s gotten so bad that many of my neighbors don’t even bother to report it because they know that our police services don’t have the resources to even investigate.

Posted by Don Gosney on Sep. 06, 2013 @ 11:41 am

You will soon be underwater when no loans are available in Richmond and the value of your now above water house plummets!

Posted by Guest on Sep. 07, 2013 @ 8:42 am

goes through, and that will make it near impossible for anyone to borrow or re-finance in Richmond.

The law of unintended consequences strikes the naive. Again.

Posted by Guest on Sep. 07, 2013 @ 8:55 am

The replies blaming the suckers (homeowners) and defending the banks feel like they must have be written by bank employees or whatever. The banks were criminal; they got bailed out with no penalty. Richmond should prevail with their solution!

Posted by Col on Sep. 05, 2013 @ 3:20 pm

Americans who understood and accepted the need for the banks to be bailed out?

Or that many of these borrowers were indeed dumb?

Posted by Guest on Sep. 05, 2013 @ 3:30 pm

As as 26+ year Richmond homeowner who's far from underwater, I'm glad Richmond is doing this. I'm just amazed how many people side with the banks. Power to the People!

Posted by Guest on Sep. 05, 2013 @ 5:23 pm

It's about those of us who make sacrifices to pay our mortgages in full every month being ignored while those who took out excessive loans get a bailout.

Posted by Guest on Sep. 05, 2013 @ 6:51 pm
Posted by Guest III on Sep. 05, 2013 @ 9:03 pm

Exactly the opposite of what should happen.

Posted by Guest on Sep. 06, 2013 @ 2:01 pm

Post new comment

The content of this field is kept private and will not be shown publicly.

Also from this author

  • Poll says SF loves tech buses, doesn't ask Spanish speakers

  • Boom for whom?

    Why isn't San Francisco's hot economy creating a budget surplus to address its costly byproducts?

  • A fine dilemma

    Increased citations often hinder homeless youth from finding better life