- This Week
Richmond to seize hundreds of mortgage loans from banks to revive its communities
09.03.13 - 3:26 pm | Joe Fitzgerald Rodriguez |
Guardian photo by Brittany M. Powell
MRP is the brainchild of John Vlahoplus and Robert Hockett, two Rhodes Scholars who sought a way to rescue the economy from a growing problem: Busted mortgages were reducing the nation's spending. More than 11 million homes are underwater throughout the United States, according to data from mortgage metric site CoreLogic.
That these mortgage loan investments were locked up in cities and held by big banks that Washington had recently bailed out made national action on the problem less likely, which led Vlahoplus to a novel solution.
"I thought, how would you fix this? Buy them," he said. "How would you buy them? Eminent domain. Find someone with the incentive to do the economically rational thing, and that's what it was." This way, no national rescue would be needed and the solutions would come from the cities themselves.
The mechanics of the plan are anything but simple. Richmond offers anywhere from $180 to $150,000 to buy a bank loan that's worth about $300,000 (but sometimes more). The homes themselves are usually worth $200,000 or so, hence the term "underwater," as the borrowers usually owe much more than the homes are worth.
Richmond then offers the homeowner a new loan with lower, livable monthly payments, and MRP makes $4,500 in the transaction.
The sticking point is when the banks refuse to sell the loan to Richmond. That's when the city invokes eminent domain, seizing the loan whether the banks want it to or not. Hence the controversy.
This move has already been challenged in court. Wells Fargo, on behalf of investors like Fannie Mae and Freddie Mac, filed a lawsuit in August to stop Richmond's plan.
The suit paints a picture of a false Robin Hood, arguing that the plan pulls money from the banks' and investors' pockets, and funnels it directly into Richmond's coffers. Wells Fargo alleges that McLaughlin's strategy is an "unconstitutional scheme," a "profit-driven strategy," and would cause "substantial economic harm in Richmond and beyond."
But at this point, it may be the only card Richmond has left in its hand. And the stakes, McLaughlin said, are high.
"We've seen the situation get worse and worse," she said. "Having boarded up homes is in itself a blight, and often things go along with that like crime. People utilize these homes for drug activity and such. It's a burden on the city, a burden on the community. People are dealing with the devastation of their neighborhoods going downhill."
Though all of Richmond is affected when homes lose their value, those hardest hit by the housing crisis are the borrowers themselves.
Juan Sandoval is 45 years old, a father and a husband. After entering the U.S. from Mexico when he was 18, he built a life here. His single story home in the Belling Woods neighborhood is modest but welcoming, adorned with photographs of his wife and children. There are hints of the family's Catholic faith — the Virgin Mary peers down from a shelf behind a VHS copy of Disney's Dumbo.
Sandoval bought the house for $290,000 on a non-fixed rate a few years before the housing crisis. His home was last valued at $185,000, and now he owes the banks more than $450,000 on the mortgage. Sandoval is a prime candidate for McLaughlin's planned eminent domain seizure — without it, he'll soon lose his home, he said.
Only now returning to work after recovering from a back injury in his construction job, he's slowly built up debt, and couldn't afford to fix his house's furnace. His guilt grew as his family shivered through the cold at night.
The debt started to give him nightmares.
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