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One of the many after effects of the housing bust is a vast number of seriously underwater properties that have a market value far below the amount of the mortgages that are being held by the banks. There have been various attempts at trying to setup adjustment programs, but banks and mortgage companies have shown very little interest in cooperating. Now the city of Richmond California has come up with a bold and interesting proposal.
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.
Needless to say the titans of Wall St. are wetting their pants at the very thought of such unruly behavior. Richmond was the site of the Kaiser ship yards durning WW II and has always been a city with extensive working class neighborhoods. Like other similar cities in California and other parts of the country such as Detroit, it has been hard hit by the continuing financial crisis. The recent surge in home values in fashionable areas of San Francisco hasn't been felt in Richmond.
The plan would be for the city to help the underwater home owners to refinance the properties in line with current market value. It sounds a bit like a bankruptcy proceeding in reverse.
The article describes how Richmond's plan would work. Wall St. sources are making various threats of retaliation. Since many other cities are experiencing similar problems, it could something that might snowball. Whether it ultimately stood up in court or not, it could force the banks to experience a much needed attitude adjustment.
Originally posted to Richard Lyon on Tue Jul 30, 2013 at 02:00 PM PDT.