An unprecedented plan to buy struggling Richmond homeowners’ underwater mortgages is moving forward.
The Richmond City Council voted 4 to 3 early this morning to continue pursuing the controversial plan, which could use the city’s power of eminent domain to force bondholders to sell underwater loans, allowing homeowners to restructure their mortgages.
The council rejected an agenda item submitted by Vice Mayor Corky Booz and Councilman Nathaniel Bates to strike down offers to buy the mortgages.
“Many in our community have been targeted by predatory loans, too many have already lost their homes, and all of the city of Richmond has suffered,” said Mayor Gayle McLaughlin, who authored the council resolution in favor of the plan.
About half of the city’s homeowners are underwater on their mortgages, city manager Bill Lindsay said at the start of Tuesday night’s roughly seven-hour meeting at the Richmond Memorial Auditorium.
In a bid to counter that trend, City Mayor Gayle McLaughlin has led the charge toward a partnership with San Francisco investment firm Mortgage Resolution Partners (MRP) to buy 624 city residents’ mortgages that are underwater, or that owe more money than the home is currently worth.
Under the Richmond Community Action to Restore Equity and Stability plan, or Richmond CARES, the city could use eminent domain to force the sale of the mortgages if lenders don’t accept the offer, city officials say.
Four of seven council members voted for the mayor’s proposal to continue Richmond CARES and to set up a joint powers authority between Richmond and any other cities teaming up with MRP.
So far, the Southern California city of El Monte has expressed the most interest in partnering with MRP and has urged Richmond to set a precedent by moving forward with the partnership, McLaughlin said.
The council struck down a measure authored by Councilman Jim Rogers requiring MRP to provide insurance protecting the city of Richmond from all litigation and related damages related to the plan before moving forward with eminent domain action.
Rogers said he drafted the item after learning that MRP hadn’t secured insurance to protect the city from potential litigation stemming from the eminent domain plan.
MRP executive chairman Steven Gluckstern noted before the meeting that the firm is covering legal costs associated with any litigation against the city related to the partnership and said a joint powers authority would provide further protection.
On Thursday, a federal court is set to rule on a lawsuit brought against the city by Wells Fargo and Deutsche Bank over the plan. The suit alleges that the proposed use of eminent domain, which is typically used to purchase private land for public use, is unconstitutional.
The banks say the plan would also harm Richmond in the long run by making it tougher for city residents to get approved for mortgage financing.
But McLaughlin and her supporters describe the plan as an innovative solution to help conscientious Richmond homeowners stay in their homes and as a long-overdue stand against the Wall Street investors that offered predatory loans in the first place.
Groups on both sides of the eminent domain proposal attended Tuesday night’s meeting to make their case.
Many proponents of the plan, including members of the Alliance of Californians for Community Empowerment (ACCE) and the Richmond Progressive Alliance wore yellow T-shirts and hoisted small flags provided by ACCE.
Many of the dozens of speakers who voiced support for the plan during the marathon meeting identified themselves as underwater Richmond homeowners struggling to keep their homes.
Patricia Castillo said her Richmond home, which she purchased in 2005, is on the brink of foreclosure, and that she is holding out hope that Richmond CARES will work.
“I’ve seen a lot of impact in my neighborhood; families moved that couldn’t modify or keep up with their payments,” she added. “We need these programs to help stabilize ourneighborhoods, it’s time to stand up to Wall Street and stand up for the city of Richmond.”
On the other hand, Joshua Genser, a lifelong Richmond resident and longtime property and business owner, said the forced sale of a home for 80 percent of its market value under the city’s proposal would harm Richmond property owners, not the banks.
“If we pass this program it will be impossible to get credit in the city,” he said. “The plan is dangerous to every resident, every business owner in the city of Richmond.”
Dozens of others at the meeting, including a group of about ten young men who declined to say whether they live in Richmond, wore red T-shirts that said “Stop Investor Greed,” the name of a group formed against the eminent domain plan.
The group is headed by local real estate broker and past president of the West Contra Costa County Association of Realtors Jeff Wright.
Many residents at the meeting said they had recently received glossy mailers sent out by the WCCAR decrying the city’s principal reduction plan.
Wright said he believes the plan would harm Richmond by making it tougher for homeowners to get credit and said investors who might choose not to lend money in Richmond because of the plan would be exercising understandable caution.
Some speculate that the city’s failure last month to sell $34 million in bonds is a sign of Wall Street’s early retaliation against the plan.
But Amy Schur, an ACCE campaign director, said the mortgage acquisition program “is actually a win-win-win for everybody,” including banks, which stand to lose from homes going into foreclosure.
“This is not about anyone making money, this is about saving homes,” she said.
Schur also echoed statements from the mayor and other council members who have said any retaliatory action from banks against Richmond would equate to redlining – a term used to describe a discriminatory practice by banks that raise costs or decline to do business in minority communities.
“We can’t let fear stop us from stabilizing our community and we can’t let fear keep us from boosting our local economy,” Councilwoman Jovanka Beckles said, drawing applause and cheers from the audience, which dwindled from several hundred Tuesday evening to several dozen by early this morning.
The mostly peaceful meeting, punctuated with applause and cheers, devolved by the early morning into insults and personal attacks on fellow council members from Booz?and Bates, causing the mayor to call for a brief recess before the council’s final vote.
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