New Orleans Talking to community activists this week who are among the sparkplugs behind the Richmond Progressive Alliance (RPA) in Richmond, California, one of the hot topics was the investigation by the city of whether or not eminent domain might force refinancing of houses facing foreclosure that are “underwater,” where owners owe more than market value. After widespread attention in San Bernardino County last year and their retreat from that notion, I had thought this proposal had been shelved everywhere, but it turns out there is still a heartbeat, and Richmond, used to fighting giants like Chevron with its huge Bay Area refinery that often treats the city like a company town, might be just the place to give this tactic a try.
They have been working with a group of investors called Mortgage Resolution Partners (MRP) who have advanced the scheme. According to the Mercury News, it would work like this:
“The plan, according to MRP and Richmond officials, goes something like this: After a government agency seizes the underwater mortgage, investors brought together by MRP pay off bond holders at close to the current appraised value, then line up a new mortgage for the homeowner at far less than the previous amount. MRP takes a $4,500 cut from the new lenders.”
My friends had a good friend-of-a-friend-friend-of-a-friend perspective on what happened in San Bernardino County as well. It seems that before the vote on using eminent domain there, private jets clogged the runways in southern California from Wall Street banks and mortgage funds delivering the message that if San Bernardino tried this tactic they could forget about ever borrowing a dime again or selling a bond on a public works project anywhere ever. San Bernardino officials were forced to fold like a cheap suit.
The whole fight is the old fight since 2008 of getting banks to agree to principal reductions in refinancing mortgages underwater, particularly those mortgages held in huge Wall Street tranches with hundred of investors making it virtually impossible to get agreements to restate the mortgages to current market values even this long after the bubble burst. The eminent domain tactic would make loans performing again but banks and other investors would finally have to restate all this paper value to what is really on the streets where people live.
Cities like Richmond on the West Coast and Newark on the East Coast, where this is also under discussion, are desperate. Studies that say 49% of the mortgages in Richmond are underwater made it easier to get a 6-1 vote to see if a deal can be forged with MRP to use this tool. Newark with Mayor Cory Booker now raising money coast-to-coast for a snap election for the U.S. Senate will never go toe to toe with big finance and big bankers.
Richmond though is a whole different matter. After our visit we toured the site of the old Kaiser shipyards and walked through the National Park Services’ Rosie-the-Riveter museum in this hulking facility with a million dollar view of San Francisco and Marin County from its docks. They have taken the measure of Chevron and are in a constant struggle with the 8th largest corporation in the world. They tried to pass the first tax on sugar sodas in the country by referendum going toe-to-toe with the food giants. They have a Green mayor and a great, volunteer-led progressive organization in RPA, local community organizations like ACCE, formerly California ACORN, and others. There’s steel in Richmond, so this still might be place that takes the measure of Wall Street and recreates a housing market for working families out of the rubble of the recession.