RICHMOND -- The radical idea of using eminent domain to seize underwater mortgages and cut them down to current market value appears to have firm support among city officials.
Now, a coalition of backers say, it's time to build support in the streets.
"In Richmond, I see political and community leaders courageous enough to wage this battle," said Steven Gluckstern, chairman of Mortgage Resolution Partners, the investment firm that promises that its untested idea will save residents' homes and help improve the local economy. "And make no mistake, it's going to be a battle."
About 100 Richmond residents gathered at Nevin Community Center on Saturday to hear an impassioned presentation by leaders from MRP, the Alliance of Californians for Community Empowerment (ACCE) and the Richmond Progressive Alliance. Speakers, including Mayor Gayle McLaughlin and Councilwoman Jovanka Beckles, portrayed Richmond as once again a pioneer willing and able to take on powerful interests, casting the struggle with Wall Street banks in the same light as earlier efforts to thwart Chevron Corp.'s refinery expansion and a failed attempt last year to become the first city to impose taxes on sugary beverage sales.
Now, the city could become the nation's first to use eminent domain to bail out distressed homeowners. Gluckstern is also pursuing the plan in a handful of Southern California cities but says momentum is greatest in Richmond.
Saturday was the first town hall-style meeting to build support for the effort, and organizers say there will be more. McLaughlin, Beckles and other top city officials will meet with Gluckstern on Thursday to iron out details, purportedly targeting about 1,000 underwater loans, before a detailed proposal comes to council late this month or in early July.
Amy Schur, ACCE's campaign director, walked residents, most of whom owe much more on their mortgages than their houses are worth, through the problem and the proposed solution. Schur said a disconnect precipitated the housing market crash in 2008-09.
"(The banks) started selling the (mortgage) loans" to other investors, Schur said. "The people who peddled loans to us no longer cared if the loans succeeded. They don't lose when we lose ... and often loan servicers actually do better when we fail, when we foreclose."
Residents gathered in the community center, which sits in the heart of the city's working class Iron Triangle district, mostly nodded in agreement.
The plan works like this: 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 lender.
While skyrocketing housing prices buoy more affluent Bay Area communities, Richmond remains comparatively mired in foreclosures and underwater mortgages. A report released last month by ACCE revealed that 900 Richmond families lost their homes last year and that 4,600 local homeowners were underwater on their mortgages by about $700 million.
Many older houses that fetched upward of $500,000 at the market's peak are valued at less than $300,000 today. About half of all mortgage-holders in the city owe more than their houses are worth.
Fierce opposition is expected, and harbingers already abound. Gluckstern has been turned back in several other cities in recent years.
The Securities Industry and Financial Markets Association sent Richmond a stern letter, and members of the local Chamber of Commerce and banking industry have grumbled disapproval, saying credit will dry up in the city and potentially plunge Richmond into a deeper crisis.
On Saturday, Schur told residents to be braced for a fight, both political and legal, and be prepared to see it though.
"It's a high-risk, high-reward" plan," Schur said. "This is going to be hard."