Despite PIMCO, DoubleLine, and pretty much every other major mortgage bondholder in the world litigating the actions, Richmond, California's leaders approved this morning a plan for the city to become the first in the nation to acquire mortgages with negative equity in a bid to keep local residents in their homes.
Richmond's city council voted 4 to 3 to use the power of 'eminent domain' (as we discussed here most recently [7]) if trusts for more than 620 delinquent and performing "underwater" mortgages reject offers made by the city to buy the loans at deep discount pegged to their properties' current appraised prices to refinance them and reduce their principal.
City council members opposed to the plan countered that using eminent domain would put Richmond at risk of expensive lawsuits that could destroy the city's finances; and sure enough, Richmond had no takers last month when the successor to its redevelopment agency put $34 million of bonds up for sale to refinance previous debt. As Reuters reports [8], investors holding the mortgages targeted by Richmond dispute altruism motivates the plan and are set to meet in court for the first time tomorrow.
Via Reuters, [8]
Richmond, California's leaders approved on Wednesday morning a plan for the city to become the first in the nation to acquire mortgages with negative equity in a bid to keep local residents in their homes.
The power of 'eminent domain' allows governments to seize private property for a public purpose. Critics say the plan threatens the market for private-label mortgage-backed securities.
Richmond's city council voted 4 to 3 for Mayor Gayle McLaughlin's proposal for city staff to work more closely with Mortgage Resolution Partners to put the plan crafted by the investor group for the city to work.
Richmond can now invoke eminent domain if trusts for more than 620 delinquent and performing "underwater" mortgages reject offers made by the city to buy the loans at deep discount pegged to their properties' current appraised prices to refinance them and reduce their principal.
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City council members opposed to the plan countered that using eminent domain would put Richmond at risk of expensive lawsuits that could destroy the city's finances.
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Other council members warned of a backlash from financial institutions, noting Richmond had no takers last month when the successor to its redevelopment agency put $34 million of bonds up for sale to refinance previous debt. The eminent domain plan had been disclosed to the U.S. municipal bond market.
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realtor Jeffrey Wright warned that going through with eminent domain could prompt a clampdown in mortgage lending in Richmond or push up mortgage interest rates in the city of about 104,000 residents.
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The investors have sued through trustees Wells Fargo & Co and Deutsche Bank AG in U.S. District Court to block the plan, which they say relies on them swallowing losses. The two sides square off in court in person for the first time on Thursday.