Richmond plan to seize underwater loans faces key challenges
Stoking the debate over the city of Richmond’s possible seizure of underwater home loans, advocates for minority neighborhoods told a judge that mortgage-industry threats to block the program would violate fair-housing and fair-lending laws.
“Instead of fighting the city and threatening to red-line Richmond, the banks should refocus their efforts on helping homeowners,” Kevin Stein, associate director of the California Reinvestment Coalition, said in a statement accompanying a friend-of-the-court brief.
The argument added another twist as the battle, watched closely by foreclosure-racked cities across the nation, headed for an intense debate Tuesday night at the Richmond City Council meeting. Proposals included an effort to kill the measure.
Proponents of the city’s plan, led by Richmond Mayor Gayle McLaughlin, contend the best way to stop a foreclosure epidemic is to buy or seize underwater mortgages, write down the amounts owed, and then provide the homeowners with new loans that would lower their payments.
It would be the first time a U.S. city had exercised its eminent domain powers, which typically are used to take over buildings or land for public use, to acquire mortgages.
High-powered opponents from the mortgage industry hope to derail the plan by the blue-collar, largely minority city in the San Francisco Bay Area, where proponents of the principal-reduction plan say 46% of the homeowners owe more on their mortgages than their homes are worth.
Banks acting as trustees for mortgage-bond investors have asked a San Francisco federal judge to block the program on grounds it is unconstitutional.
Responding to that lawsuit, the filing Monday by nonprofit legal and civil-rights groups said that if the mortgage industry imposes higher costs on Richmond borrowers, as has been threatened, it would violate fair-lending laws because the city is 40% Latino and 25% African American.
“Anti-discrimination statutes make it illegal to discriminate on the basis of race with respect to all aspects of housing, including mortgage lending,” the filing said.
“The industry’s plan violates this prohibition because it denies basic and critical lending rights to all residents of Richmond, who are disproportionately African American and Hispanic.”
But opponents of the Richmond plans have found allies in at least two members of the seven-member council, including Vice Mayor Courtland “Corky” Boozé, who proposed the motion seeking to kill the measure.
McLaughlin, meanwhile, is asking the council to set up a joint-powers authority that other cities interested in reducing principal on mortgages could join.
The idea is being promoted by Mortgage Resolution Partners, an investment firm that earlier this year persuaded San Bernardino County and the cities of Ontario and Fontana for form such an alliance. That alliance later backed off the plan amid pressure from Wall Street.
In an interview Tuesday, McLaughlin said a joint-powers authority of many cities would efficiently handle negotiations and lawsuits and provide its members protection from liability claims.
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