Mayor Explains Process in the News
City Plan to Stop Blight and Stabilize Neighborhoods
Given that questions have come up regarding the City of Richmond's Local Principal Reduction Program, I wanted to bring forward some clarifications. This is how the program works:
The City buys the old, inflated mortgage (not the home) for the current fair value of the mortgage. The mortgage value (determined by an independent appraiser) is somewhat less than the current home value after factoring in a reduction based on the likelihood of an underwater home to default. This is the common mortgage industry practice. So here is a scenario:
- The old, inflated mortgage is $400,000
- Current home value is $200,000
- The current value of the old mortgage (not the home) is $160,000 (factoring in the likelihood to default)
- City (with funding from third parties) offers to buy the old mortgage for $160,000.
If the old mortgage holder accepts , the homeowner refinances the old mortgage with a new FHA insured loan of $190,000. The extra $30,000 goes partially for FHA insurance for the new loan (for the homeowner), $4,500 as a flat fee to Mortgage Resolution Partners (MRP), partially to the City for our affordable housing programs, and the remainder to the third party funders.
If the old mortgage holder does not accept the City's offer, then the City has the option of acquiring the mortgage by eminent domain. In this process, the City will still pay fair market value as determined by a court.
What does the homeowner get?
- The homeowner gets a new loan balance of 190K (reduced from their 400K loan);
- they get 10K equity (since the current home value is 200K and they only have to pay a mortgage of 190K) when they had zero equity before;
- they get a new, standard, fully amortizing 30 year mortgage loan with affordable interest rates;
- and they don't go into foreclosure or have to walk away from their home and incur the bad credit that a foreclosure and/or default presents.
Several FHA lenders will be available and homeowners can shop for the lowest rate. Payments will be fixed for 30 years. This is a standard fixed rate, fixed payment amortizing mortgage, so the share of the monthly payment that goes to pay down principal grows with every payment.
What do the neighbors get?
Stability and security, because the neighborhood does not have to endure another foreclosed, and possibly abandoned and looted, home which immediately affects all the surrounding homes
What do the owners of the loans get? The fair market value for the old mortgages now in cash, without any risk of loss from later defaults and foreclosures. No holder of any mortgage is being punished. Pension funds and other investors that purchased the mortgage backed securities lost money when home values declined and the mortgage backed securities were downgraded from "AAA" rated to "junk" bonds. The City buying the loans for what they are worth today will not create additional losses. Fannie Mae, for example, bought many of these securities when they were AAA rated in 2007. Today 90% of these securities are rated as non-investment grade -- "junk". Finally, all existing investors, including pension funds, will have the opportunity to fund the City's purchase of the loans. The City will treat existing investors fairly and give them every opportunity to help themselves by preventing losses from defaults and foreclosures on the old inflated loans.
What about expensive homes? We, the Council, will make the final decisions on all transactions and we will look at various factors in making our decisions. It is also important to remember that by far the largest amount risk from underwater homes is that they default and cause neighborhoods to become more and more troubled. The City's goal is to prevent harm to all of us as neighbors and residents of Richmond.
What about the threat to boycott future mortgages if eminent domain is used? As per the Center for Economic and Policy Research (CEPR) website:
"It is worth noting that the response being threatened by the Federal Housing Authority, Fannie Mae, and Freddie Mac, to boycott future mortgages from the city, is not a market response. This is the response of a cartel which collectively buys close to 90 percent of new mortgages.
While investors will lose money from seizures compared to a situation where mortgages will be paid off in full, the vast majority of severely underwater mortgages will not be paid in full. This means that lenders already have seen a loss, even if this has not yet been recognized. The loss is not the result of the seizure."
It also needs to be stated that any entity that would attempt to restrict credit to cities with a large proportion of low-income communities like Richmond would be subject to federal laws against red-lining, and the City of Richmond and our partners would have every right to bring in a civil rights law firm to file suit.
What about costs to the City for the program and/or for any legal costs? In the City's agreement with MRP, it is made clear that this program will be implemented at no (zero) cost to the City and its taxpayers. The agreement also fully indemnifies the City, which means that the City is not liable for any legal costs.
--Mayor Gayle McLaughlin
Nat Bates: Carrying the Banks Message
The Banks Attack
The Richmond plan to stop blight and foreclosures is getting national coverage. Much is favorable. Even the business press is taking the proposal as a serious alternative to watching our cities be overcome by blight. The use of the City's power of eminent domain to back the plan when necessary draws the attention. In reality this is a win-win solution for all including the financial sector. If the city can stop blight it maintains, stabilizes, and even increases the value of all the houses in the neighborhood. This benefits all the mortgage holders in the city.
Because of the serious crash in real estate values, when a house is abandoned the mortgage holder does not get the value of the original mortgage, and only gets the current value if the house is sold immediately. If the house remains empty for even a short period (as is often the case) it quickly deteriorates, as it loses its wiring and plumbing fixtures to theft and possibly becomes a drug house. Then the mortgage holder not only loses all the value of the property, but is forced to pay fines and incurs other costs.
Yet the banks and realtors that caused this crisis are complaining and using their money and lawyers to try to intimidate the city.
Even though the properties they hold are worth far less than their original value, the banks want the homeowner to absorb the whole loss in value. A normal business decision would lead most homeowners to abandon their underwater mortgages just as companies freely close plants or declare bankruptcy.
But homeowners who have roots in their neighborhoods don't make the best "economic decision." They want to stay, and they continue to take the loss as long as they can, even while they are underwater. Thus they have been subsidizing the banks for the last several years. The banks would like underwater mortgage holders to keep bailing the banks out of the mess the banks created themselves.
Already it appears that Councilmembers Bates and Booze are bowing down to the power, by carrying the message of the banks. After accusing the Mayor of "misrepresenting the city council action by parading around San Francisco and threatening Wells Fargo without city council approval" Bates, supported by Booze tried to call an emergency Council meeting "to make the necessary corrections" implying that the any plan to fight foreclosures and blight that banks don't like should be abandoned.
In fact, the Mayor invited Wells Fargo to work with the city in "principal reduction" on underwater homes. In fact, the only city action is to make an offer to mortgage holders to purchase their mortgage. Both Bates and the banks have jumped the gun. Any action involving eminent domain has to come before the council. The council will have to determine both the policy and each case. It is likely the current bank legal cases will be thrown out of court because "they are not "ripe"- nothing has happened that could conceivably be harmful to anyone. See the city's filing in response to the lawsuits of all the banks.
There is ample proof that the foreclosures resulting from the banking crisis cause neighborhood blight. There is strong legal precedent that supports the power of cities to eliminate any "blighting factors or causes of blight ." Wikipedia has a good summary and provides sources.
Unfortunately legal precedent and fairness do not always determine how the courts will rule. The Supreme Court is supremely political. This is the court that gave the Presidency to Bush. This is the court that ruled in "Citizens United" that corporations are people and can spend as much as they want to pollute our elections. So we may not win at first until we build a mass movement in this country that insists on our rights to stop blight in our communities. We have had to build such movements to end legal segregation, to win voting rights for women, to form unions, as well as some measure of equality for the LGBT community. But we can win if we keep at it and don't give up in advance.
Banks, Big Business, and Bates Cry "Wolf"
Nat Bates is sending out letters warning about the terrible consequences of getting the banks and financial industries mad at Richmond. He is becoming the spokesperson for the same tactics conservatives and business groups have used to try to block every attempt to clean the environment, provide medical care for people who are not rich, and make families secure. These groups promise that doom will come from some regulation they don't like and then they will do everything they can to make people believe it.
Here is what President Obama said on June 25th when he introduced his climate change agenda:
Now, what you'll hear from the special interests and their allies in Congress is that this will kill jobs and crush the economy, and basically end American free enterprise as we know it. And the reason I know you'll hear those things is because that's what they said every time America sets clear rules and better standards for our air and our water and our children's health. And every time, they've been wrong. (read full speech here)
The Cry Wolf project devotes itself to exposing these kinds of myths about the economy and government.
Pretending to be for the People
Realtor Glossy Mailings Hit Richmond
The West County Association of Realtors has flooded Richmond mail boxes with expensive glossy mailers claiming to warn against Wall Street hurting Richmond through the City's plan to fight blight and foreclosures. .
This would seem like a crazy claim to make. After all, it is the big Wall Street banks like Wells Fargo that are attempting to block the city. So they try to make the argument that Mortgage Resolution Partners (MRP), the group that the city is working with to provide the legal services and find the investors for the refinanced mortgages, represents Wall Street and will make huge profits from this arrangement.
Consider the amounts involved. The City's plan provides that MRP will make a flat fee of $4500 for each mortgage that is refinanced. Supposing a house is worth $300,000 and is bought/sold through a realtor. Typically the commission for the realtors is between 3% and 6 % of the sales price or $9000 to $18,000--about 2 to 4 times what MRP is charging.
Yes, MRP and the new mortgage holders expect to make a profit. That is the way the system works. But within the system are banks that "are too big to fail" and then have to be bailed out, greedy financial companies, and some that charge more reasonable prices for reasonable services. Look at the glossy mailer again and decide for yourself who is defending the greedy sector.
Mayor Gayle on CNBC
Here is some of the print coverage on Richmond's plan to fight blight:
Hear also Richard Wolff's national radio commentary praising Mayor McLaughlin.
Download it from KPFA here
(about 50 minutes into the program).
Senate Bill Threatens Refinery Workers
Early this summer, strong opposition killed AB-26 which masqueeraded as a refinery safety act. In reality it contained two onerous clauses. One was the use of public money to subsidize refinery construction. The other was to change the rules to aid the building trades unions at the expense of the steelworkers who represent most of the workers who actually run the refineries.
Now the second feature has snuck into a State Senate bill, SB-54 sponsored by Lonnie Hancock (with Skinner and Bonilla, among others, in the Assembly)
Time is short. Contact your Assembly members. Tell them to oppose SB-54. It hurts Steelworkers who have gone through extensive, comprehensive training programs, have additional site-specific training, AND have a proven track record of safety. They shouldn't be punished by being outsourced through this bill!
See Steelworkers Union explanation
March Reflected a Powerful Movement
1963 March on Washington Remembered
Here are three important views that deepen our understanding of the 1963 March on Washington.
Claiming and Teaching the 1963 March on Washington
by Bill Fletcher
In fact, The Americans, a high school history text by publishing giant Houghton Mifflin Harcourt, tells students that the march was called simply "to persuade Congress to pass the [1963 civil rights] bill." In reality, the demand for jobs was not a throwaway line designed to get trade union support. Instead it reflected the growing economic crisis affecting black workers.
Indeed, while Dr. King was a major player, the March on Washington did not begin as a classic civil rights march and was not initiated by him. There is one constituency that can legitimately claim the legacy of the march-one that has been eclipsed in both history as well as in much of the lead-up to the August 2013 commemorations: black labor.
The economic aspect of King's dream is not better but worse.
|Danny Glover Reads John Lewis|
Danny Glover Reads John Lewis' speech at the 1963 March
|August-September Issue of La Voz
- Opinions on Same Sex Marriage
- Cooperative Jobs
- Fusion Latina
- Immigration Reform
- Origins of Richmond's Latino Community
- Prevent Foreclosures
- Never Again
- Building Strong Children
- Urban Agriculture
Pick up copies at the RPA office
or call 510-229-4484
Watch HEIST for FREE!
Now to September 4th
HEIST: Who Stole the American Dream?
Hello, HEIST friend!
We hope that this finds you well and that you have had a wonderful summer!
As you know, Labor Day is fast approaching (September 2nd). And August 28th will mark the 50th anniversary of the March On Washington! To celebrate, we are making HEIST available for FREE to stream online from August 23rd to September 4th! Simply click the link at
Stand Up Against the Banks and the Corporations Who Gang Up on Richmond
Some History and Understanding of the RPA
Long article with pictures
--have patience in downloading
Understanding Chevron Property Taxes
RPA asked Jeff Kilbreth to research and help us understand the situation with Chevron's property taxes since millions are at stake for the city budget and city services. Chevron regularly threatens the City and County with expensive legal action. Since the tax laws are deliberately murky and hard for most of us to understand, Chevron frequently gets its way behind closed doors.
Jeff made a presentation to us that made it clear that Chevron gets away with a lot in this process. You can see a revised version of his PowerPoints here
. There will be more revisions and graphics added later, so check back. In the fall Jeff will give some more presentations on this topic.
Jeff has just retired from a 30 year career in High Tech, mostly in the Silicon Valley enterprise software business. He has a Masters of Business Administration from Yale University and kind of likes accounting.
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