Richmond’s program to prevent foreclosures spreads
on November 6, 2013
It was one of those public meetings with a whole lot of talk and no action, but this discussion –in Oakland – is nonetheless crucial to Richmond’s plan to prevent future foreclosures. That’s because Richmond may need the support of other cities to succeed in its struggle with the banks.
The Oakland city council spent more than two hours debating Richmond’s eminent-domain strategy last night, also known as the Richmond Cares program. Some councilmembers wanted the city to express solidarity with Richmond, and begin a study of Oakland’s foreclosure problem. Others wanted the city attorney to evaluate Richmond’s proposal and consider implementing a similar program.
In the end no decisions were made: The city decided to table all items until the November 19th council meeting. However a debate raged in Oakland’s council chambers — a city grappling with a foreclosure problem not too different from Richmond’s. The majority of speakers and councilmembers pushed for Oakland to back Richmond in some capacity. “The people of Oakland are truly in a very desperate situation and we need all of the help that we can get,” said Councilwoman Desley Brooks.
Richmond councilwoman Jovanka Beckles was delighted to hear that Oakland may soon join a growing number of cities supporting Richmond’s principle reduction plan. “That’s great and beautiful,” she said. “I hope they take it further by looking into the program themselves.”
Eighteen cities across the country are following Richmond’s lead and considering similar approaches to preventing foreclosures, according to Mayor Gayle McLaughlin. Mortgage Resolution Partners, the investment firm working with Richmond, is assembling a group of cities in California that can move forward with the plan together.
This would partially shield Richmond from liability issues and costly lawsuits. Last month a consortium of banks and investment firms sued Richmond over its eminent domain plan. The Bank Of New York filed another suit against Richmond last week, which was dismissed Wednesday afternoon. If the city presses forward though, it will likely face more litigation.
“These are big companies. They have a lot of power, they have a lot of money,” Beckles said. “None of us as individual cities can do it alone, but now we’re seeing that if we band together we can actually succeed.”
Neither resolution Oakland is considering would help Richmond in any material way. Brooks’ item “is entirely ceremonial. It is us standing in solidarity with a city that has had the courage to do something bold,” she said.
Oakland councilwoman Rebecca Kaplan would like to have the city legally analyze Richmond’s approach, and potentially emulate something similar down the road. “The problems we face might not be identical to Richmond,” she said, but “it is important to learn from Richmond’s leadership.”
Other cities are pursuing more significant partnerships with Richmond. El Monte and three other cities in Southern California have expressed interest in creating a Joint Powers Authority with Richmond, which would allow the separate governments to act as one in the courts. “With the support of other cities we can really provide that leverage to get the banks to come to the table and sell us the loans at fair market value,” Mayor McLaughlin said. “I’m thinking this is now gaining the momentum that we need in terms of creating a national movement.”
The coalition should be solidified in the next few months, said Steven Gluckstern, CEO of Mortgage Resolution Partners.
Many other cities across the nation are interested in emulating Richmond’s principle reduction plan, including Seattle, Baltimore, and New York to name a few —although only jurisdictions in California can form a Joint Powers Authority.
“Wall Street thought that if they kept [the plan] isolated to Richmond they would’ve had a much better chance of crushing it, but they’ve failed,” said Amy Schur, campaign director for the Alliance of Californians for Community Empowerment (ACCE), an economic rights group. “A lot of other cities are stepping into the fray,” which is essential for Richmond to “stand up to Wall Street.”
Richmond’s plan has elicited fervent opposition from banks and investors. Last month the global investment firms Pimco and BlackRock—along with Wells Fargo bank and Deutsche bank—filed a lawsuit against Richmond alleging that their plan was illegal.
Seven other cities that have worked with Mortgage Resolution Partners were named in the suit as well, implying that banks and investment firms are worried about the plan spreading.
Pimco and BlackRock are concerned that Richmond’s scheme will hurt their client’s retirement funds and savings. While neither firm returned requests for comment, they provided a glimpse into why they oppose the plan in early October, when Pimco founder Bill Gross and BlackRock CEO Larry Fink discussed the fate of the U.S. economy at a plush Beverly Hills hotel.
The conversation was interrupted when members of the labor union SEIU and community group ACCE hurled threats and demands at them. “Why are you suing the city of Richmond instead of negotiating?” one woman yelled. “Your time is coming. Your day of reckoning is coming.”
The two financial titans watched with apparent discomfort as security guards escorted the protesters out of the banquet. They then responded to their question.
“The use of eminent domain for mortgages instead of real property is…quite questionable, which is why we have a suit,” Gross said at the Beverly Hills gala.
“We’re doing this on behalf of our clients,” Fink said. “We’re doing this for the pension funds that are invested in this. We’re doing it for the individual mutual fund holders.”
Labor and housing rights activists have been pressuring Pimco and BlackRock to negotiate an amicable solution with Richmond. Ultimately, activists would like banks to sell distressed loans to the city so that it won’t have to use eminent domain. “This program is actually good for their investors and clients,” Schur, of ACCE, said. “They’re sitting on many troubled mortgages headed for foreclosure; that’s a bad investment.”
In two weeks the Oakland City Council will revisit its discussion on Richmond’s eminent domain plan, and could lay the groundwork to adopt a similar program. However, that could be a long ways away, and for now some supporters would like to see Oakland simply stand in solidarity with Richmond. “We’re not asking you to move this program forward,” Schur said at the Oakland city council meeting, “but to take the simple stand and say, ‘God bless the city of Richmond for trying something to fix this crisis’.”
The Richmond city council plans to revisit the principle reduction plan in December and the Joint Powers Authority should be set up by then.
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