If Richmond goes ahead with its plan to buy “underwater” mortgages, it will be the first city to use eminent domain to address its housing crisis. About half of homeowners with mortgages in Richmond are underwater, some owing three to four times as much as they paid for their homes. City officials have already sent letters to homeowners offering to buy loans at a portion of their market value. For example, a home purchased for $400,000 but valued at $200,000 would have its loan bought for $160,000 by the city. Other cities, including Seattle and San Bernardino, have also considered the strategy, which is opposed by banker and realtor associations. We discuss the pros and cons of eminent domain, and what it would mean for Richmond residents.

Interview Highlights

Steven Gluckstern, chairman of Mortgage Resolution Partners
Robert Hockett, professor of law at Cornell University and one of the originators of the eminent domain plan
Jeff Wright, independent real estate broker with Wright Realtors and former president of the West Contra Costa Association of Realtors in Richmond
David Wert, public information officer for San Bernardino County

  • Lawrence

    The banksters and the real estate crooks helped create the mess we are in. They deserve to lose in order to resolve our problems. Society cannot afford these degenerate parasites that are banksters and real estate crooks any longer. Time for you bunch to walk the plank!

    • Dan

      The original lender is long gone. The owners of the note is likely your pension/401k plan. Those people do not deserve to take an unfair hit.

      • Lawrence

        On the other hand, the pension/401k should not have bought into these bad investment schemes. If we bail them out because they made bad bets, that is the definition of moral hazard.

        • Dan

          Agreed. It was a mistake to bail the banks/AIG. We should have let the banks rot. Nobody here is advocating bailing out the note holders, but the note holders should retain the legal rights afforded to them by the note.

          But advocating for eminent domain takeover is as wrong of a decision as advocating for the bank bailout. Two wrong policy decisions don’t make it right.

          If you follow this discussion, there is a wall street investor that backs the eminent domain takeover (probably the same banker originated and sold the mortgages to the pension funds). They’re lending Richmond the money required to execute on the plan — one that will have his pockets lined as a result of the action. If you were true to your statement about sticking it to the crooks that created this mess, you’d make sure they don’t become a participant again. They stand to make money when they originated the mortgage, and money again “helping” fund Richmond to execute this plan.

          And certainly your statement also holds true for the homeowners that made equally bad investment decisions on the purchase of a home they couldn’t afford. Its a moral hazard.

          At the end of the day, I don’t care if its a homeowner or a wall street banker: stop using my tax money to line either group’s pockets.

  • Bill_Woods

    “For example, a home purchased for $400,000 but valued at $200,000 would have its loan bought for $160,000 by the city.”

    If a mortgage has a face value of $400k and the underlying asset is worth $200k, then the fair value is somewhere between those figures. Offering to pay only $160k is proposing to steal at least $100k.

  • Just_A_Thought

    If Richmond buys underwater homes and banks decide not to lend on homes in Richmond, does that mean Richmond then needs to enter the lending business to get people to buy homes? Or will Richmond then become a landlord and rent all of their homes?

    • Jason Richardson

      They aren’t buying the homes, just the notes.

  • Jason Richardson

    Apart from the securitization issue, 624 homes out of 12k underwater homes will have little impact on Richmond, outside of very small submarkets (at the block level). There has been no effort to spatially analyze the notes offered for purchase to determine if their seizure will positively influence the stability of their neighborhoods.

  • Dan

    As a struggling homeowner that’s been faithfully making payments, I find it to be a moral hazard for my government to reward the deadbeat next door. Also, this program sounds like a plan to line the pockets of another group of wall street investors under the guise of ‘helping homeowners’ by stealing from the original note holder.

    • Shay Moss

      So you think you can judge your neighbor for what they went through to cause them to get behind on their mortgage ?.. “note holder”… spoken like a true banker . I bet you are a property investor …or a “landlord” .

      • Dan

        Yes. I’m judging and probably have a lack of empathy. But empathy doesn’t entitle the government to steal from one group and pay another. Simply because the homeowner goes through a hardship does not entitle them for relief from the government. If it does, then why can’t the govt find a way to compensate me from the dot-com bust, when my car depreciates, or if I lose money in Vegas? It doesn’t. And it shouldn’t here.

  • Paul Nichols

    Jeff Wright pretty much crushed this interview! Awesome conversation today.

  • jim

    Given how intriguing the idea of using eminent domain for the purpose of alleviating blight and saving homeowners is, I don’t understand why Mr. Gluckstern needs to be as misleading as he is being on peripheral issues. E.g., why would he say that it is the lender that pays all of his fees, and not the homeowners or the city, when it’s obvious that the lenders will factor the fees into the loans and pass that cost along to the homeowners and the city?

  • mconnel5

    This is a very significant issue, national in scope. It is hopeful that bankers hate it. I hope the Michael Kransny interview will be accesable on line soon.

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