Five years into the housing crisis, the city of about 105,000 and its Green Party mayor figure they've run out of better options – and out of patience with federal solutions that never came – to ease the local foreclosure glut. The median price of homes in town has dropped to less than half of what it was at the height of the housing boom. And the city has estimated that about 51 percent of its homeowners are underwater. Richmond is in worse shape than most towns sacked by the housing bubble: Its home values are low, its unemployment and poverty rates are high, and its residents in danger of foreclosure are unlikely to have the principal on their mortgages reduced any time soon.
In this position, Richmond has now become the only municipality in the country to seriously consider using eminent domain to seize underwater mortgages from the investors who currently hold them. The city would not seize the properties themselves – as more typically happens in eminent domain cases – but would use the power to essentially purchase the mortgages at their current market value (against the wishes of the banks that hold them).
A company called Mortgage Resolution Partners would help the city fund and manage the purchases, ultimately selling the restructured mortgages to new investors at rates that would keep the current residents in their homes.
So far, every other local government that's been tempted by this idea has ultimately abandoned it.
The scheme, Mother Jones wrote earlier this year, "is almost as complicated as the derivatives and collateralized debt obligations that caused this mess to begin with."
But the idea at its core is relatively simple: Richmond sent letters to the banks and investors currently holding 624 mortgage notes on homes in the city, asking to buy them at current market value. The banks said no. Now the city hopes to purchase them anyway, citing a government power more commonly wielded to take private property for constructing public infrastructure like highways.
Mortgage Resolution Partners has been pitching the proposal to distressed cities for more than a year. But, so far, every other local government that's been tempted by the idea has ultimately abandoned it in the face of growing pressure from the banking industry, realtor groups and even the federal government.
by Emily Badger, Atlantic Cities | Read more:
Image: Flickr user BasicGov
