Eminent Domain Could Save City's Homes
(CN) - Richmond, Calif.'s City Council voted Wednesday to use eminent domain to seize underwater mortgages and refinance them at deep discounts to help residents stay in their homes.
The council approved the plan 4-3 despite backlash from banks, including three that sued the city over its homeowner-rescue plan.
Wells Fargo and Deutsche Bank filed one federal lawsuit in August, and The Bank of New York Mellon sued the city in a separate, similar complaint. The banks say the rescue plan will cost them and their investors tens of millions of dollars and is part of an "elaborate profit-driven scheme" crafted by an investment firm "that stands to profit handsomely from the deal."
They are referring to Mortgage Resolution Partners, which crafted the plan and will be working closely with city staff to implement it.
The plan allows Richmond to invoke eminent domain if necessary to buy up more than 620 delinquent and performing underwater mortgages at deep discounts and then refinance the properties at reduced loan values.
Governments use the power of eminent domain to seize private property for a public purpose.
Richmond's rescue plan would lower homeowners' monthly payments, possibly helping them avoid foreclosure.
Mayor Gayle McLaughlin vigorously defended the plan at the city council meeting Tuesday night, according to a Reuters report, saying residents have been "badly harmed by this housing crisis."
"Too many have already lost their homes," she reportedly said.
City council members who opposed the plan expressed concern that Richmond would face costly lawsuits that could break the city's budget.
"A 1 percent chance of bankruptcy from this program is a deal-breaker for me," Councilman Jim Rogers said, Reuters reports.
The Federal Housing Finance Agency has reportedly threatened to pressure Fannie Mae and Freddie Mac to stop lending in Richmond and other areas that approve similar proposals.
The banks and investors are expected to face each other in court for the first time Thursday.