The old proverb “the enemy of my enemy is my friend” suggests that two parties who don’t particularly like each other can still unite to battle a common enemy. Apple and Microsoft teamed up against Google; Yankees and Red Socks fans bonded to boo Alex Rodriguez; and banks and credit unions recently joined to fight the Richmond, Calif., plan to use eminent domain to seize mortgages. Banks and credit unions became “frenemies” on Aug. 30, 2013, when the ABA, California Credit Union League, and several other trade associations, including the California Bankers Association, filed a joint amicus brief criticizing Richmond’s plan to use eminent domain to force the refinancing of select “underwater” mortgages.
The American Civil Liberties Union and the Center for Popular Democracy today filed a lawsuit under the Freedom of Information Act (FOIA) to compel the Federal Housing Finance Agency (FHFA) to provide details about the agency's relationship with the financial industry and its efforts to block municipalities from using eminent domain to prevent foreclosures. Banks have foreclosed on millions of homes, and vast numbers of homeowners remain at risk of losing their homes to foreclosure because their mortgages are “underwater,” meaning homeowners owe more than their properties are now worth.
A California city's controversial plan to use eminent domain to help its residents burdened with mortgages worth more than their homes has caught the eye of some Baltimore leaders, who say the city might benefit from the program. There are thousands of such underwater mortgages in Baltimore, so 4th District Councilman Bill Henry has asked the City Council to explore the possibility of using the city's power to take mortgages from banks and then work with a private firm to refinance the loans based on current property value.
Bondholders of mortgage loans that Richmond, California, has threatened to seize through eminent domain are asking a federal appeals court to revive their lawsuit against the city. Bank trustees for investors including BlackRock Inc. (BLK), Pacific Investment Management Co. and DoubleLine Capital LP are appealing U.S. District Judge Charles Breyer’s Sept. 16 ruling tossing the case, Rocky Tsai, an attorney for the banks, said in a filing today in federal court in San Francisco. They’re asking a federal appeals court in San Francisco to review the ruling, according to the filing.
Respected real estate analysts now forecast that the U.S. is poised to experience a renewed round of home mortgage foreclosures over the coming 6 years. Up to 11 million underwater mortgages will be affected. Neither our families, our neighborhoods, nor our state and national economies can bear a resumption of crisis on this order of magnitude.
I argue that ongoing and self-worsening slump in the primary and secondary mortgage markets is rooted in a host of recursive collective action challenges structurally akin to those that brought on the real estate bubble and bust themselves. Collective action problems of this sort require duly authorized collective agents for their solution. At present, the optimally situated such agents for purposes of mortgage market clearing are municipal governments exercising their traditional eminent domain authority.
The Oakland City Council again squabbled and ultimately scheduled competing resolutions supporting Richmond’s out of the box anti-foreclosure proposal for later this month, but not before Councilmember Dan Kalb flashed anger for the first time and Larry Reid finally showed up for work. A resolution first offered by Councilmember Desley Brooks in two separate Rules Committee meetings last month was rescheduled for Nov. 19 following a motion by Kalb who said he still needed time to understand the intricacies of Richmond’s controversial plan to aid owners of underwater mortgages.
The failure of the U.S. government to prosecute those who were the masterminds behind the NTMs (nontraditional mortgages) and subprime loan debacle, that more likely appear to have been an intentional Ponzi-like scam, makes Eminent Domain a plausible solution for relief. If handled properly Eminent Domain may actually save homes and families – not to mention saving lives and local governments that foolishly invested in unregulated and rigged derivatives and securities. Do the math. Hypothetical figure (conservative): $900 month payments X 67 million MERS mortgages X 12 months (1 yr.) = $723,600,000,000 new revenue stream annually – and this figure is conservative… it’s likely 2-3 times higher and this is JUST MERS.
Gayle McLaughlin looks and sounds like the former school teacher and data entry worker she was — down to her sensible brown walking shoes. What the 5-foot-4-inch mayor of this working-class San Francisco Bay Area city does not resemble is the ready-to-march, dogged corporate thorn she is. Her latest opponent? Wall Street. McLaughlin, a member of the leftist Green Party, is leading a novel effort by the city to buy 624 underwater mortgages in Richmond, pay the investor-owners some of what they're owed and set the homeowner up with a new mortgage closer to the home's current value.
Morris LeGrande believes that, sooner or later, the bank's going to come for his house. The 57-year-old jazz musician lives in the largely African-American Park Plaza neighborhood of Richmond, Calif., and owes more than $400,000 on his mortgage. According to a recent assessment, his house is only worth about $130,000. LeGrande is current on his payments, but in 22 years he will have to make a single lump-sum payment of $194,000. "At the end of the day, we will lose this home," LeGrande says. "There's no doubt about it." LeGrande has become a de facto spokesman for underwater homeowners in a city where more than 40 percent of all mortgages are underwater, according to Zillow.
"It is important to understand that no decision has been made on the merits of this case. Judge Breyer ruled that the case is not ripe, which is a ruling made on timing. Today's ruling does not mean Richmond's plan is legal; indeed SIFMA believes the use of eminent domain to seize mortgage loans contains numerous Constitutional and other legal defects, and that it would represent a flagrant misuse of a municipality's power.