California city to bail out underwater mortgages
Richmond plans to buy negative-equity loans and help owners refinance. The drastic action it vows to take if lenders don't play along is somewhat less comforting.
The Richmond, Calif., City Council is willing to take that chance. According to Reuters, the council voted 4 to 3 in favor of Mayor Gayle McLaughlin's proposal for city staffers to work with investor group Mortgage Resolution Partners to acquire mortgages with negative equity and allow residents to keep their homes.
Richmond can now invoke eminent domain if the institutions and investors holding 620 underwater mortgages reject offers made by the city to buy the loans at a deep discount, refinance them and reduce their principal. The Green Party-affiliated, Wall Street-distrusting mayor and housing advocates love the idea.
Folks with business in the housing sector are far less enamored. Realtor Jeffrey Wright warned that the plan could result in tougher mortgage lending in Richmond or push up mortgage interest rates there. The Federal Housing Finance Agency recently said it will advise Fannie Mae and Freddie Mac to limit or cease its business where similar proposals are approved.
The mortgage industry and local real estate businesses have defeated such plans in North Las Vegas, Nev., and earlier this year in San Bernardino County in Southern California, but they were steamrolled in Richmond. That's not sitting well with the investors holding the mortgages, who allege that the city would use eminent domain power to assist San Francisco-based MRP and split the profits from refinancing.
The investors have sued through Wells Fargo & Co (WFM) and Deutsche Bank (DB) in U.S. District Court to block the plan, which they say relies on their taking a loss. The court date is scheduled for Thursday.
Just remember all of this the next time you hear discussion about ballooning home prices, rising mortgage rates and a foreclosure rate approaching "normal." Younger buyers are still largely shut out of the housing market because of massive student loan debt. States including Florida and California are still dotted with abandoned homes. Richmond's eminent domain plan is still in the extreme margins and facing a huge court fight, but its approval states emphatically just how dire the housing situation remains in pockets of the U.S.
So, the answer is to ultimately make the taxpayer responsible for this?
These administrators aren't liberal, they are downright ignorant.
So what is the local gov. putting into the mix? If it's money, then it's taxpayers who should get to VOTE on this.
The entire country should vote on major moves. Let's see how obamacare would go then. How would the possible war in Syria go then?
They should be able to change the interest rate but not the loan amount. But it is impossible to qualify for a lower rate when your state was the epicenter of raising home prices during the crisis. Everybody else could refi when rates got to a record low and this town got the shaft. Dunno why/how people can blame the borrowers here, its not a omg you should be able to pay for it thing. Its more like, give these people a chance to refinance at a lower rate like every body else issue.
A gesture that will fail ultimately but will force lenders to reconsider "reckless" paper.
If we had stricter lending regulations, we would not be at this point.
Time (albeit late) to set (reset?) precedence.
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