Thursday, September 12, 2013
Richmond, California is taking on the mortgage industry with a bold plan to help distressed homeowners:
Richmond, a largely working-class and minority city northeast of Berkeley, has offered to buy 624 home loans at a discount from investors in mortgage bonds, saying the loans are under water and is offering their fair market value.
It has said it may use its eminent-domain powers to seize loans if it can't buy them, an action that would require a separate vote with five of the seven council members in favor. The idea would be to then reduce the principal on the loans and refinance the homeowners, restoring their equity and reducing their payments.
In response, the mortgage industry has threatened to cut off lending to the city, saying seizures of troubled loans would disrupt the entire U.S. system of housing finance. Richmond also is battling a federal lawsuit seeking to shut down the program as unconstitutional -- part of a barrage of current and threatened litigation contesting the plan.