To help struggling homeowners like Doris Ducre, the mayor of Richmond, Calif. has a plan: use eminent domain to seize their underwater mortgages from banks and restructure the loans.
More than a quarter of Richmond borrowers owe more than their homes are worth, according to a report prepared by researchers at the University of California, Berkeley, compared with 10% nationally.
Richmond Mayor Gayle McLaughlin wants to use the city’s property-seizing powers of eminent domain to help homeowners dig out from huge housing debts. Other cities, including Newark and Irvington in New Jersey, have proposed similar plans but none has advanced as far as Richmond’s.
Under Richmond’s plan, the city would seize the mortgage—but not the home—with backing from a private firm. They would then reduce the loan principal and refinance into a new government-guaranteed loan. That would leave the borrower with a fixed payment and less debt.
But the plan has met a wall of protest from banks and mortgage-bond investors, who have sued to block the seizures. They fear the plan works only if cities are able to buy loans at deep discounts, and mortgage investors say the proposal would make them less willing to extend credit in Richmond.
Information from Nick Timiraos | The Wall Street Journal
