Earlier this year, the city of Richmond, Calif., began exploring a plan in which the city, in partnership with the private firm Mortgage Resolution Partners, would buy underwater mortgages, seizing the properties through eminent domain should the note-holders refuse to sell. The city would then refinance the mortgages at terms easier for the homeowners to meet.
The plan has drawn fire from industry groups and government regulators. Mortgage bond trustees including Wells Fargo and Deutsche Bank sued the city over the plan, questioning its constitutionality. That suit was dismissed. The Federal Housing Finance Administration said it would instruct Fannie Mae and Freddie Mac not to guarantee loans in municipalities that used the plan.
Still, Richmond officials were adamant about moving forward – although they have yet to seize any mortgages – and now other cities are taking notice.
Irvington, N.J., an economically struggling township of about 53,000 people, has seen almost 1,800 homes foreclosed upon in 2008, according to an Associated Press report. Irvington officials have declared their intentions to use the eminent domain plan to purchase homes in foreclosure, and the plan enjoys considerable popular support there, the AP reported.
The idea also has been or is being considered in Newark, N.J., Yonkers, N.Y., Brockton, Mass., and Chicago. The plan was also recently floated by the city council of Baltimore, a city where thousands of mortgages are underwater, according to the Baltimore Sun.
Baltimore City Councilman Bill Henry, who asked the council to consider the plan, said it would not only aid borrowers but help combat the urban blight that often comes with vacant homes, according to the Sun.
“It would be one thing if we could rely on all banks to be completely responsible property owners and maintain those properties in the same condition that an owner-occupier would, but the truth of the matter is that we can't and a lot of times what that ends up meaning is vacant, blighted houses,” Henry said.
A California city’s controversial plan to help underwater homeowners is starting to attract attention in other parts of the country.