Mayor of Richmond urges Vallejo to take stand on foreclosures

Joe Feller – Solano County Green Party

3/21/14

Thursday night at the Bay Terrace Theater (aka MIRA Theater), Gayle McLaughlin, Mayor of Richmond, implored the City of Vallejo to join a Joint Powers Association and take a stand to protect underwater homeowners from foreclosures.  In a well researched presentation, Mayor McLaughlin and the Community Activist Group, Alliance of Californian's for Community Empowerment (ACCE), presented a compelling argument for our city to become a leader in protecting our neighborhoods from the blight and corporate ownership that is changing the character of many of our communities.

The meeting was well attended with many local politicians and community activists.  Current Mayor and Council Members  Osby Davis, Katie Meissner, and Robert McConnell were in attendance.  In addition, Lt. Governor candidate Jena Goodman (Green) was in attendance along with State and Local Green Party functionaries.  This presentation was a follow up to a meeting held last fall to present the City of Richmond's attempts to use eminent domain to restructure underwater loans on dwellings in their city to keep families and tenants in their homes.  It began with some startling facts. 

First all Americans lost on average of 40% of their household wealth in the Great Recession.  Certain minority communities lost even more with estimates stating Latinos lost over 66% as an example.  This was caused by the housing bubble (which is most of family's wealth) bursting.  Foreclosures are not nearly done and in fact should increase this year.  Nationwide, 4.5 million homes nationwide are either delinquent or in foreclosure currently.  Another 9.3 million are "deeply underwater" according to the ACCE spokesperson.  In Vallejo, it is estimated that 47% of homeowners are "underwater".  This means that almost half of our homeowners owe more on their mortgages than what their property is worth.  The famed economist Joseph Stiglitz and Mark Zandi stated that "Housing remains the biggest impediment to economic recovery (in the United States)".  The biggest problem are the "slice and dice" loans or Private Label Security loans (PLS).  These are loans that are divided up among investors and are either direct or purchased from loan originators.  They often times are predatory.  A graphic presented by ACCE showed hundreds of these loans in Vallejo, including Hiddenbrooke.

What Mayor McLaughlin and her partners are proposing is using eminent domain to restructure "underwater" loans.  The primary focus is on single family residences and small rentals (i.e. duplexes where the owner occupies one unit).  It is also on the PLS loans.  This is the current Richmond proposal although each city could tailor their ordinance to address bank owned loans, multi tenant properties and other locations that are in trouble.  As an example, if the original property value was $400,000 and the loan was for $300,00; the current mortgage payment would be $1,798 (presuming a 6%apr).  The city would get a current appraisal (for the example, let's say $300,000) and then begin eminent domain proceedings.  After seizing the loan (the city never takes over the actual property), the city then sells it to a partner for 95% of the appraised value or in our example $190,000.  This would reduce the mortgage for the property owner to $907 a month and reduce the likelihood that the owner would enter into a foreclosure situation.  According to FHA estimates, using this model, foreclosures in communities would be reduced from 60% to 7.5%. 

The program has 4 principles to protect the city.  1st is maximize sustainable homeownership and minimize displacement of homeowners and tenants.  2nd is that homeowners must be able to "opt-in" or "opt-out".  3rd is that local government must maintain control along with local stakeholders and program partners.  Finally, this is all accomplished at no cost to the taxpayers.

It must be pointed out that the "partners" are various mortgage companies that hope to profit from the new loans.  They will assume the risks of the homeowner paying the new mortgage and will assume all potential legal claims against the city.  Since Richmond began their process, they have been sued and inundated by outside money to sway the community (every resident received a glossy brochure arguing against this proposal).  Richmond's partners assumed the legal challenge and won.  At a recent hearing on the proposal 40 people spoke for the proposal and 3 against; indicating the big money outside interests were unable to sway the local community in Richmond.  In addition to brochures, big money interests have been running an ad campaign on CBS Radio in the Bay Area.  The add claims that property values are negatively impacted by the foreclosures.  Both Mayor McLaughlin and the ACCE representatives were adamant that this was another "Big Lie".  Since the property never changes hands, indeed the homeowner never leaves the property, there is no "comp" created.  It is merely recorded as a loan modification and has no impact on "comps" or on property taxes.

Since this program has some conditions (like "super majority votes" by the various councils involved);  Mayor McLaughlin and ACCE are trying to get several communities to join the JPA.  This will resolve some technical issues and allow the project to move forward in the smoothest fashion.  The main recommendation is for IB Vallejo readers to contact the City Council and inform them of your support for this proposal.  It will mean a quicker and deeper economic recovery for the City of Vallejo.  There are some other potential benefits including possible funds from the settlement between Wall Street lenders and the State of California.  This could mean hundreds of thousands of dollars to the city coffers.  In fact, although opposed by the various state and national realtor boars, this could actually help real estate reclaim some of the lost equity and create higher priced homes for sale in Vallejo.  The case is so compelling that New York, NY; Newark NJ and Seattle, WA. are all investigating this solution.

In conclusion, we should all thank the Bay Terrace Theater group for sponsoring this meeting and especially thank Karimah Karah for hosting the event.  Karimah promised more of these events in the future.