This Day On The Street
Continue to site
ADVERTISEMENT
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

California City Moves Ahead With Eminent Domain Mortgage Plan Despite Risks (Update 1)

Updated from 11:11 a.m. ET with comments from SIFMA.

NEW YORK ( TheStreet) -- The city council of Richmond, Calif. has voted in favor of moving ahead with a proposal to seize underwater mortgages from bond investors through eminent domain, despite the likelihood of a long legal battle.

The council voted 4-3 in favor of the "Richmond CARES" program, under which the city, in partnership with a firm called Mortgage Resolution Partners, seeks to buy 624 underwater mortgages held by private investors at a discount to the underlying property value, write them down and refinance them. If investors do not voluntarily sell, the city will seize it through eminent domain.

Still, there were clearly concerns among some officials that the plan came with considerable risks. The mortgage industry, including the Federal Housing Finance Agency which regulates Fannie Mae and Freddie Mac, has threatened to cut off Richmond if it uses eminent domain to seize mortgages.

Recently, the city had trouble finding takers for a municipal bond offering in August.

And the legal battle could be lengthy and costly for the city, with eminent domain cases typically taking two years in court and appeals taking even longer.

"A 1 percent chance of bankruptcy from this program is a deal-breaker for me," Councilman Jim Rogers said at the city council meeting, according to Reuters.

Eminent domain allows government to seize private property for public use for fair compensation.

Richmond officials argue it is the only way they can prevent further foreclosures in the city where more than half of the borrowers owe more than their mortgages are worth and are arguably at risk of default.

The mortgage industry has promised a fierce fight, arguing the proposal is unconstitutional and ill-advised, especially because many of the 624 mortgages that the city plans to write down are current and the offer from Richmond is well below what the investors consider to be the fair market value of the loan. Moreover, nearly 40% of those loans have already been modified.

Critics say the plan does not really benefit the public and that Mortgage Resolution Partners, which earns a fee for every mortgage refinanced under the program, stands to unfairly profit at the expense of bond investors.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
WFC $53.42 -1.10%
BLK $310.58 -1.20%
DB $29.67 -1.30%
TSLA $248.76 2.40%
YHOO $33.10 -1.70%

Markets

Chart of I:DJI
DOW 16,614.21 -40.56 -0.24%
S&P 500 1,977.22 -10.44 -0.53%
NASDAQ 4,801.5390 -11.1690 -0.23%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs