This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Eminent Domain Plan to Seize Underwater Mortgages Could Sink City

Stocks in this article: FNMAFMCCWFCBLK

There is no provision that stops borrowers from making payments during that time, which means borrowers don't really get help in this time period.

And if the city decides to abandon the case, it is responsible for the lender's attorney fees.

Burg cites an example of the city of Oakland, Calif trying to acquire the Oakland Raiders professional football team when it was decided to move the franchise to Los Angeles. The city lost and ended up paying $3.2 million in legal fees to the Raiders' attorneys. It also entered into a $4 million settlement with the football team which had demanded $26 million in damages because the city had blocked its move to L.A. and deprived it of revenue.

Add to this the very real threat that banks could curtail credit to Richmond and you see how the risks add up. The proponents of the proposal say this is an empty threat, because banks will be violating fair lending rules.

But actually investors in mortgage-backed securities take into account state foreclosure laws and other rules that increase the cost of lending all the time. Fannie and Freddie for instance have proposed raising guarantee fees in states that have an unduly long judicial foreclosure process.

If investors believe there is a risk that a city would seize mortgage loans because the borrowers are under water, they have the right to shun loans originated in those communities. And poor demand from the secondary market will have the effect of curtailing credit in these areas.

At best, the proposal smacks of desperation, as Richmond officials are trying to find ways to revive housing and the local economy.

"The government, encouraged by a private entity MRP , is trying to solve this problem. But this isn't the way it can solve it," says Burg.

-- Written by Shanthi Bharatwaj in New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
4 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,546.47 +146.80 0.90%
S&P 500 1,932.38 +28.37 1.49%
NASDAQ 4,389.9730 +73.8990 1.71%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs