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  Richmond Loan Reduction Plan Draws Wide and Disparate Media Coverage
August 31, 2013

Following is some recent media coverage of what is becoming known as the Richmond Mortgage Reduction Plan. Of special interest is an LA Times article:
http://www.latimes.com/business/realestate/la-fi-hiltzik-20130901,0,1360275.column. And also read these FAQ Richmond CARES program.
As the Times article notes, the financial community has become hysterical about what Richmond is doing and is obsessed with stopping it no matter what it takes. The Times characterized the financial community’s responses as “fatuous flimflam” from “a gang that has never owned up to its responsibility for the housing disaster.”
There is a lot of false and misleading information being spread, including that by Nat Bates and Corky Booze, who voted for the program but now have become its critics-in chief.

The City Council, including both Bates and Booze, voted to kick off the program on April 2, 2013. I was absent. The agenda item I-11 reads:

I-11. APPROVE an Advisory Services Agreement with Mortgage Resolution Partners, LLC to assist the City of Richmond in reducing the impact of the mortgage crisis, by advising on the acquisition of mortgage loans through the use of eminent domain, in order to restructure or refinance the loans and thereby preserving home ownership, restoring homeowner equity and stabilizing the communities' housing market and economy by allowing many homeowners to remain in their homes

The April 2, 2013 Minutes are as follows:

The matter to approve an Advisory Services Agreement with Mortgage Resolution Partners, LLC to assist the City of Richmond in reducing the impact of the mortgage crisis, by advising on the acquisition of mortgage loans through the use of eminent domain, in order to restructure or refinance the loans and thereby preserving home ownership, restoring homeowner equity and stabilizing the communities’ housing market and economy by allowing many homeowners to remain in their homes was presented by City Manager Bill Lindsay. (At 11:00 p.m. on motion of Councilmember Myrick, seconded by Mayor McLaughlin extended the meeting to finish the current item with Councilmember Butt voting Noe). Councilmember Butt left the meeting at ll:15 p.m. Leland Chan and Melvin Willis gave comments.

A motion was made by Councilmember Beckles, seconded by Councilmember Myrick to approve an Advisory Services Agreement with Mortgage Resolution Partners, LLC. Councilmember Myrick requested a report back from staff regarding loan criteria and specifics. A substitute motion was made by Vice Mayor Booze, seconded by Councilmember Bates to hold the item over for 30 days to gather more information. Following discussion, Councilmember Bates withdrew his second. The original motion to approve an Advisory Services Agreement with Mortgage Resolution Partners, LLC passed by the following vote: Ayes: Councilmembers Bates, Beckles, Myrick, Rogers, Vice Mayor Booze, and Mayor McLaughlin. Noes: None. Abstentions: None. Absent: Councilmember Butt.

The only action that has been taken so far pursuant to the agreement is the identification of potentially eligible properties and an offer to negotiate with the mortgage holders.

Bates has argued that the action taken exceeds the authority granted by the City Council. (see http://www.ibabuzz.com/westcounty/2013/08/17/richmond-councilman-denounces-eminent-domain-plan-urges-special-meeting/).  However, the agreement speaks for itself (see http://sireweb.ci.richmond.ca.us/sirepub/cache/2/oykza45oyziyi20he4d4rxz1/36546308312013093243868.PDF).

The agreement allows certain actions to proceed and requires additional action by the City Council for others (Section 2):

Provided, however, MRP shall not take action or implement programs or tasks set forth in subsection (b), (d), (e), (f) and (h) hereof without the express written consent of City in advance,
which consent may be withheld in the City’s sole and absolute discretion. Provided further, however, in no event shall MRP have the authority to enter into any contracts on behalf of the

Identifying and contacting mortgage holders is not one of the actions listed in subsections (b), (d), (e), (f) and (h).

Another alarm that has been raised by Bates and others relates to an apparent difficulty of MRP to obtain required insurance coverage, as required by Section 9 of the agreement:

INSURANCE. Upon receiving approval from the City to take action or implement programs or tasks set forth in subsection (b) of Section 2, MRP, at its own cost and expense, shall provide and maintain insurance coverage as required in Exhibit A, “City of Richmond Insurance Requirements – Type II: Professional Services”. MRP shall submit current certificates of insurance for the policies required in this Section 9 before taking action or implementing any programs or tasks set forth in subsections (b), (d), (e), (f) and (h) of Section 2.

However, the required insurance coverage is required only after the City Council has approved the aforementioned actions described in (b), (d), (e), (f) and (h) of Section 2, which has not yet occurred. While insurance coverage may be an issue and may, in fact, doom the program, that conclusion is clearly premature.

Assertions that the City’s agreement with MRP will affect its bond rating, that it has cost the City millions, that it will affect the availability of mortgage loans in the future and that it will devalue the City’s housing stock are all speculation, largely fueled by the hysterical financial community.

Bates and Booze are pandering to their business supporters, including the local Board of Realtors, which has already launched a campaign with slick mailers filled with lies about the program.

I don’t know how this will play out, but I am prepared to stay calm and continue my support at least through the September 13 Federal Court date when a hearing hearing will hopefully yield some evaluation of Wall Street’s collective hysteria.
Housing fix has strong enemies
The federal government and the banking industry have failed to bring mortgage relief to homeowners in need. Richmond's plan to use eminent domain would help fill the void.

Banks argue that the Richmond initiative is unnecessary because they already do their utmost to reach out to struggling homeowners. Above, protesters hold a banner outside Wells Fargo headquarters in San Francisco last month. (Rohan Smith, San Francisco Chronicle / September 1, 2013)

By Michael Hiltzik
August 30, 2013, 7:17 p.m.
One way to judge the virtues of the city of Richmond's initiative to use eminent domain to help its strapped mortgage borrowers is by the hysterical reaction of the banks and investors holding the mortgage loans.
Wells Fargo & Co. and Bank of New York have sued the East Bay city in federal court to throttle the plan even before its birth. (A court hearing on their request for an injunction is set for Sept. 13.)
They've enlisted federal regulators in their hand-wringing over the damage little Richmond (pop. 105,000) might wreak on the mortgage market nationwide. The real estate interests have even cajoled some of their housebroken congressmen, such as John Campbell (R-Irvine), into introducing legislation to stop Richmond in its tracks.
So there must be something to the city's idea.
A lot of flapdoodle has been pumped into the public consciousness about Richmond's plans, most of it from the financial sector. It says Richmond is planning to seize underwater mortgages from lenders by condemning them by eminent domain for low-ball prices. It says there's no precedent for using eminent domain for the city's stated purpose of arresting blight — it's just for building things like schoolhouses and highway onramps. This is all about "the misuse of public power for private benefit," to quote Bank of New York's lawsuit.
But that's not quite true. It's really all about the failure of the federal government and the banking industry to bring desperately needed mortgage relief to homeowners wrecked on the shoals of the housing crash — many of them steered onto the rocks by unscrupulous mortgage bankers.
The government's major program for mortgage relief, the Home Affordable Modification Program, has served only 20% to 25% of the 5 million homeowners it was designed to assist. Richmond is stepping into a genuine vacuum.
It's also about arresting a slide in Richmond's economy. "I want to stabilize our neighborhoods," says Patrick Lynch, the city's housing director. "I know what a blighted property costs us to board it up and send the fire department out on calls."
You may think Richmond's effort is outdated. After all, home values are rising again and the foreclosure wave is ebbing. That's true generally, but the trend has passed Richmond by. In the city, which is 40% Latino and 25% black, more than half the homeowners are still underwater — their homes are worth less than they owe on their mortgages — by an average of 45%.
Richmond's goal is to bring some financial relief to those homeowners. They're prime candidates for relief, because the deeper underwater a loan is, the greater the chance that it will end up in default and then foreclosure.
It's well understood in the housing industry that the most effective way of staving off these defaults is to cut the principal due on the loans to a figure bearing some rational relationship to the home's value.
The toughest mortgages to work out, according to Richmond officials and their financial advisors, are those held in securitized pools, which can be owned by hundreds of thousands of investors; banks that service those pools tend to be uncertain about their legal authority to modify those mortgages unless they're right on the verge of foreclosure, so they tend not to be proactive.
So Richmond's City Council voted to offer banks servicing mortgage pools a deal: The city would buy underwater mortgages. Then, with the help of the San Francisco investment firm Mortgage Resolution Partners, the mortgages would be extinguished and refinanced so their balances would come to about 95% of the homes' current market value, on average. They'd no longer be underwater, and the risk of default would be much lower.
The targeted loans should meet two criteria, according to Robert Hockett, a Cornell University law professor who originated the idea of backing up mortgage refinancings with eminent domain. They should be loans so deeply underwater they're at high risk of default, "so their value can actually be increased by writing down the principal balances," he told me. Second, they should be loans that are hard to write down voluntarily, because of the questions about the loan servicers' authority to do so.
The city's eminent domain power plays a dual role in this initiative. First, it's a threat: If the banks refused to deal with the city, the mortgages could be seized. But it's also a tool: It removes all legal doubt about the banks' authority to sell or modify the loans; they would be required to do it.
Richmond started the ball rolling July 31 by making an offer to Wells Fargo and other servicing banks for 624 loans with unpaid balances totaling about $242 million. More than two-thirds had the oddball features that made for toxic loans during the housing crash — adjustable rates, negative amortization, interest-only payments.
The city's offer came to $126.5 million, or a little over 52% of the unpaid balances. "The prices being offered for these loans are wildly low-ball numbers, points and points and points below fair value in this market," says Daniel Ivascyn, head of the mortgage portfolio team at the Newport Beach investment firm PIMCO, which owns some of the mortgage pools at issue and is pressing for the injunction. That said, the mortgages sought by the city average out at 37% underwater. That's a level at which the risk of default is high, even if they're not yet delinquent. 
Here are some important points: The city made clear these were opening bids — it invited the banks to counter "if for any reason you are not satisfied with this offer." Second, a true low-ball offer wouldn't survive the eminent domain process, because under state law, the owner of seized property can demand a reappraisal from a court. Third, the city hasn't actually started any eminent domain proceedings — that will require a separate vote by the City Council. In other words, the banks have gone to court to stop a program that doesn't actually exist yet.
The mortgage industry has responded to Richmond with all the fatuous flimflam you would expect from a gang that has never owned up to its responsibility for the housing disaster.
In a declaration filed with the Wells Fargo lawsuit, Mortgage Bankers Assn. Chief Executive David Stevens characterizes the typical mortgage contract as a homeowner's "unconditional promise" to repay the loan in full, "regardless of the future value of the house or any other set of circumstances." His point is that using eminent domain interferes with this sacred relationship.
There are only two possible interpretations of this statement: Stevens is either shockingly ignorant, or he's lying. The truth is that there's nothing "unconditional" about a mortgagee's obligations. Homeowners can always walk away from the loan, on condition they're prepared to give up their home to the lender, suffer a hit to their credit rating, and in some states be sued for other assets. California is not one of those states: If a borrower defaults on an original mortgage to purchase a house, whether inadvertently or deliberately, the lender can take the home, and that's all. (As of this year, that protection extends to many refinancings, too.)
The idea that homeowners should spend their way to poverty or death to keep up the mortgage is a fiction concocted by the mortgage industry to protect itself and discourage homeowners from considering their own financial interest when their homes are deeply underwater.
The plaintiffs call the proposed use of eminent domain unconstitutional, although the Supreme Court has ruled in the past that intangible property such as mortgage contracts can be seized, and (in 2005) that seizing private property and handing it over to private entities is legal if it promotes economic development.
In any case, that sounds like a question to be resolved in court after Richmond actually seizes a mortgage, not before. But the real purpose of the lawsuits may be to intimidate other municipalities considering the eminent domain scheme, by showing that they'll be tied up in legal fees.
The banks argue that the Richmond initiative is unnecessary because they already do their utmost to reach out to struggling homeowners. This is according to a declaration by investment banker Philip Burnaman, also filed by Wells Fargo. Burnaman states that the banks "go to great lengths" to reach out to troubled borrowers and "attempt ... to modify the terms of the loan in order to increase its affordability."
This may be true, in fairyland. In the real world, banks haven't done nearly enough along these lines. Rather, they've engaged in all sorts of abuses of strapped borrowers, including improper foreclosures.
That's why five major banks — including Wells Fargo, which is suing Richmond — last year signed a $25-billion settlement with federal and state officials to stave off criminal prosecution. And just three weeks ago a federal appeals court in San Francisco whacked Wells Fargo — there's that name again — for what one of the judges labeled its "fraudulent" treatment of a borrower seeking a loan modification. The judges overturned a lower court ruling in the bank's favor and sent the case back down for trial.
Some investors observe that servicers of securitized mortgages have been doing better for strapped homeowners in recent years. "Three or four years ago there would have been a better case" that securitized mortgages weren't getting needed modifications, Ivascyn says. In fact, of the 624 loans Richmond wants to buy, more than half have already been modified at least once, including 40 that already have had principal write-downs. So it's not as if the banks have done nothing.
Richmond's point is they haven't done enough. In its lawsuit, the Bank of New York grouses that the city's offers are too low even to be "the beginning of a constructive negotiation." If that's so, the banks should call the city's bluff: Sit down and negotiate.
Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.
Richmond's eminent domain plan is a ploy for profit, critics say
The majority of the loans in question are either not underwater or not delinquent, opponents contend. A supporter of the Richmond plan denies that assertion.

Richmond's eminent domain plan attacked
Code enforcement officer Lorena Burciaga calls in a utility meter number at a foreclosed home in Richmond, Calif. (Justin Sullivan, Getty Images / July 13, 2012)

By E. Scott Reckard
August 30, 2013, 6:09 p.m.
In a new legal challenge, financial industry opponents of the city of Richmond's plan to seize underwater home loans call the gambit a disguised attempt to profit at the expense of everyday investors.
Richmond is threatening to use eminent domain to remove troubled loans from mortgage bonds in order to write down the principal for homeowners. The novel plan, promoted by San Francisco investment firm Mortgage Resolution Partners, seeks to stop another wave of foreclosures in the working-class Northern California city.
The plan has drawn fierce opposition from the financial industry, which has banded together in a lawsuit challenging the city's authority. In a new filing late Thursday, the plaintiffs accused the city and Mortgage Resolution Partners of cherry-picking the most valuable loans and forcing their sale at less than market value — so the firm can make a profit.
The effect will be to rob owners of mortgage securities across the country, the opponents contend, including everyday investors whose retirement savings are managed by some of the biggest bond funds in the nation.
"MRP is renting local government power to take money out of the pockets of savers and retirees across the U.S. and line their own pockets," said a statement from attorney John Ertman of Ropes & Gray, the lead counsel for the banks and bond house seeking to shut down the program before it takes hold and spreads to other cities.
An MRP official sharply disputed the assertions, and said the mortgage-bond investors could themselves step in and help finance the program — and share in the profits at the end, if any.
"Why don't they sit down and negotiate with the city and come to a deal that works for everybody?" said MRP Chief Strategy Officer John Vlahoplus.
Calls to the mayor's office in Richmond went unreturned Friday, and the city attorney's office said no one was available to respond. Efforts to reach attorneys at Altshuler Berzon, a San Francisco law firm representing the city, were unsuccessful.
Opponents of the eminent domain seizures contend that Richmond and its partner firm have mischaracterized the first 624 loans the city has targeted. The majority of the loans in question are either not underwater — meaning owners owe more than the homes are worth — or not delinquent.
About 31% of the targeted loans do not exceed the current value of the home, and so are not at elevated risk of default, according to the filing. About 10% of the borrowers have at least 20% equity in the homes, according to a loan-by-loan analysis performed by Phillip R. Burnaman II, an investment banker hired by the plaintiffs as an expert on mortgage securities.
Of the borrowers who are underwater, 43% are current on their loan payments, the plaintiffs argue. In all, 68% of the borrowers have not fallen behind, and an additional 5% are only one payment behind, according to the filing.
The loans had been bundled up to back mortgage bonds issued by private parties, without guarantees from Fannie Mae, Freddie Mac or other government-sponsored entities.
Proponents of the Richmond plan have argued these types of loans are rarely modified to keep owners in their homes. But the plaintiffs assert that about half of the loans have already been modified by lenders.
Further, more than half the borrowers ran up their loan balances during the housing boom by refinancing, allowing them to turn inflated home equities into cash. The loans total $53 million more than the original purchase prices of the homes, according to the filing.
Vlahoplus, of Mortgage Resolution Partners, disputed the analysis, saying he's confident that all of the 624 borrowers are indeed underwater. The city's appraisals of the properties, he said, were handled by a firm whose work has been highly rated by securities trade groups.
About two-thirds of the borrowers have indeed stayed current on their loans, he said. But helping them now — before they default — is the best way to make sure they stay current on the loans and thereby limit further damage to Richmond's battered neighborhoods.
"The intent here is to help the neighbors," he said.
The filings were made by attorneys for Wells Fargo Bank and Deutsche Bank, which act as trustees overseeing the pools of loans and provide customer service on them — collecting bills, paying investors in the mortgage pools and handling delinquencies and foreclosures.
The banks say they were directed to file the suit by huge bond-investment firms that own the mortgage-backed securities.
These firms — Pacific Investment Management Co. in Newport Beach, BlackRock Inc. of New York and DoubleLine Capital of Los Angeles — say the money comes from pension funds and 401(k) accounts, meaning ordinary workers would be the losers if cities profit at their expense.
Mortgage Resolution Partners last year pitched the eminent domain plan to San Bernardino County and two of its cities, Fontana and Ontario. That county and the two cities formed a Joint Powers Authority to consider the eminent domain idea but then shelved it after Wall Street groups voiced strong opposition and little public support was heard.
Twitter: @scottreckard

Richmond: Mounting concerns threaten support for plan to seize underwater mortgages
By Robert Rogers
Contra Costa Times
Posted:   08/30/2013 04:51:39 PM PDT | Updated:   about 15 hours ago

RICHMOND -- With legal and financial challenges mounting , momentum is building to scuttle the city's radical plan to use eminent domain to seize underwater mortgages and refinance them at amounts homeowners can afford.
New concerns have arisen in recent days that Richmond may not be able to refinance its municipal bonds or secure insurance protection in the event of a major loss in court stemming from the eminent domain plan.
Foes of the plan have pounced, and supporters are cautious.
"This (City Council) needs to fish or cut bait and abandon this eminent domain madness," Councilman Nat Bates said in an email to supporters Aug. 21. "The stakes are too high and costly to fight Wall Street and the financial institutions."
Bates said he plans to move at the City Council's Sept. 10 meeting to withdraw the city's offers to purchase the underwater mortgages.
"This has caused serious financial risk to the city," Bates said.
In August, Wells Fargo and Deutsche Bank filed suit on behalf of investors for a preliminary injunction against Richmond and Mortgage Resolution Partners (MRP), the San Francisco-based investment firm that the city has partnered with to implement the plan. A hearing is scheduled for Sept. 13.
Perhaps more troubling, investors this month steered clear of the city's highly rated municipal bonds, which it was attempting to sell to refinance a bond issue, saving $4 million. Some think the lack of investor interest was precipitated by the eminent domain decision. The city's finances are already reeling, thanks to steep reductions in property tax revenues.
Councilman Jael Myrick, an initial supporter of the effort to use eminent domain, said he needs "all the facts."
"Is our bond rating really at risk? How well are we protected?" Myrick said. "I need to know, but I still believe the program has tremendous value if we can find a way to make it work."
In an email to the City Council this week, City Manager Bill Lindsay wrote that it is "impossible to know why investors were not willing to bid on the bonds because they did not inform us as to their reasons."
Lindsay, who brought MRP to the city and has been solidly behind the approach, sounded a note of caution.
"Nonetheless, the possibility that the mortgage-acquisition program may impair Richmond's ability to access the credit markets is a very real concern, of which the Council should be aware," Lindsay wrote.
In an Aug. 17 email from a city debt analyst to Richmond Finance Director James Goins, the analyst noted that bonds expected to draw investors had been snubbed.
"Various reasons were given by the investors as to why the bonds were not being purchased, from concerns about credit to concerns about the city's liquidity," the email read.
Meanwhile, City Council members have questioned whether Lindsay overstepped council directives when he sent letters in July threatening to use eminent domain to seize 624 underwater mortgages if lenders didn't agree to sell the city the loans by Aug. 14. Bates said the council approval on April 2 to enter into a contract with MRP did not authorize Lindsay to send the letter.
Lindsay's letter offered to buy mortgages at current appraised values, some of which are less than half the amount of the mortgage, minus about 20 percent for transaction costs. No one accepted the offer.
Five of seven council members would need to approve the use of eminent domain before the city could move ahead with seizing mortgages. Asked Friday when the council may vote to move ahead with seizures, Lindsay said in an email, "There may never be a vote on whether to move forward on eminent domain, so it is impossible to answer when."
Mayor Gayle McLaughlin, who on Aug. 15 led more than 40 protesters to the Wells Fargo corporate headquarters in San Francisco in response to the banking giant's lawsuit against the city, and MRP officials did not immediately respond to inquiries seeking comment Friday.
Grass-roots activists, who have pushed hard for the eminent domain scheme, remain undaunted.
"The state Attorney General and the Department of Justice need to investigate potential antitrust violations and ensure that Wall Street banks aren't illegally discriminating against Richmond," said Amy Schur, campaign director for Alliance of Californians for Community Empowerment (ACCE).
Although MRP has agreed to pay all legal expenses incurred by the city in defending legal challenges to eminent domain seizures, concerns have surfaced that the city may be exposed to significant risk if a court rules against it.
Lindsay said Friday that the city's contract with MRP requires that it indemnify the city for claims stemming from eminent domain proceedings but added that there was not yet proof that it could protect the city.
In an email exchange Thursday, city Risk Manager Kim Greer also said MRP did not have insurance to cover the city against potential damages.
"Once the (eminent domain) activities hit the newspapers, no carrier would even consider them," Greer wrote.
City Attorney Bruce Goodmiller, in the same email thread, said he is not concerned now because "the city has only sent a letter, nothing more."
"I believe everyone involved, including MRP, is convinced that we cannot rely on MRP's insurance to cover any damage award in an eminent domain lawsuit against us," Goodmiller wrote.
Contact Robert Rogers at 510-262-2726 or rrogers@bayareanewsgroup.com. Follow him at Twitter.com/roberthrogers.