Cities can join together to help residents with foreclosures
The housing market still comprises millions of underwater mortgage-holders facing foreclosures (between 6 and 16 million, depending on who you ask).
Many of homeowners are battling against creditors who are trying to foreclose and or evict them. But Cities can Help.
The Home Defenders League, is using an innovative concept called Local Principal Reduction to fight mortage companies and big banks that refuse to help hoemowners remain in their homes.
The CARES program (Community Action to Restore Equity and Stability) was developed by Professor Bob Hockett at Cornell Law School. It enables a municipality to work with private investors to acquire the worst private-label securities (PLS) mortgages in town. These are loans that have been sliced and diced and securitized into investment vehicles by Wall Street, and they are not backed by the federal government via Fannie, Freddie, or Ginnie Mae. Private-label securities are owned by investment trusts and not banks. So they are not eligible for federal assistance programs. Since the original mortgages have been cut into so many pieces, it’s often impossible—to figure out who has the authority to refinance them. The underwater homeowner has no one to ask for help.
But under CARES, a city acquires these underwater mortgages, with the help of San Francisco–based Mortgage Resolution Partners, a law firm with the financial and legal expertise necessary to advise the municipalities and arrange for the private capital needed to buy the loans. Once the loans have been aquired, the city works to refinance the mortgages at current market value,
and in so doing, provides financial assistance to homeowners facing foreclosure.
Here’s the twist, If creditors refuse to sell, then the city can use the power of eminent domain to seize the properties and refinance them anyway. Saving the neighborhoods, preventing blight as well as defending against decreasing property values. http://www.homedefendersleague.org
The city of Richmond, California, is at the forefront of the LPR campaign. Bill Falik, an adjunct professor at Berkeley Law, explains:
“Richmond has tremendous legal authority to condemn underwater mortgages. Foreclosures and underwater properties reduce property taxes and reduce neighboring homes’ value. That’s called blight, and eminent domain is the authority for cities like Richmond to correct blight.” It’s a local solution to a national problem, a sweet victory bearing real results for real people, and more than an abstract line on a graph or a hollow-sounding discussion of “recovery.”
Predictably, the plan has its opponents—namely, the Securities Industry and Financial Markets Association (SIFMA),the industry trade group that represents the thirty or so trusts that own some 5 million PLS mortgages. SIFMA is dead-set against CARES, and it has spent millions to stop it, unleashing its entire arsenal: lawsuits,threatened lawsuits, recall campaigns, radio spots and direct mail.
Because of the threatened litigation, CARES is stalled in Richmond, and the city is looking for other municipalities that it can partner with to protect itself. When fighting Wall Street, there’s strength in numbers.
Incredulously, SIFMA has threatened to raise the price of credit and to categorically deny loans to residents of cities that opt into an LPR program. Denying credit to otherwise credit-worthy people based solely on their city of residence looks suspiciously like illegal redlining. Moreover, since many of the worst PLS mortgages are for houses in predominantly African-American and Latino communities (groups that were targeted by predatory lenders in the first place), this kind of action by SIFMA smacks of discrimination as well.
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RICHMOND — An unprecedented plan to buy struggling Richmond homeowners’ underwater mortgages is moving forward.The Richmond City Council voted 4 to 3 early Wednesday morning to continue pursuing the controversial plan, which could use the city’s power of eminent domain to force bondholders to sell underwater loans, allowing homeowners to restructure their mortgages.
Cities can Help