Richmond, CA May Use Eminent Domain to Prevent Foreclosures

The New York Times reports today that the City of Richmond, California is considering using eminent domain to buy mortgages and reduce homeowner debt. The banks don't like the idea.

The article explains:

[R]oughly half of all homeowners with mortgages in Richmond are
underwater, meaning they owe more — in some cases three or four times as
much more — than their home is currently worth. On Monday, the city
sent a round of letters to the owners and servicers of the loans,
offering to buy 626 underwater loans. …

The city is offering to buy the loans at what it considers the fair
market value. In a hypothetical example, a home mortgaged for $400,000
is now worth $200,000. The city plans to buy the loan for $160,000, or
about 80 percent of the value of the home, a discount that factors in
the risk of default.

Then, the city would write down the debt to $190,000 and allow the
homeowner to refinance at the new amount, probably through a government
program. The $30,000 difference goes to the city, the investors who put
up the money to buy the loan, closing costs and M.R.P. The homeowner
would go from owing twice what the home is worth to having $10,000 in


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