Writing in the Huffington Post, Occidental College Professor Peter Drier has posted a comprehensive roundup of the best press, Wall Street reactions, legal analysis and other reactions generated by the Local Principal Reduction (LPR) campaign that got a big boost this week when Richmond California became the first city in the country to offer to buy certain underwater mortgages from private investors. Here's his dead-on opening,
Usually a community group has to protest in front of a bank, take over a corporate shareholders' meeting, or get arrested at a politicians office or a slumlord's home to make the front page of the New York Times.
But on Tuesday, the Home Defenders League - a coalition of community groups who organize homeowners facing foreclosure - made the Times' front page simply by using two words: "eminent domain."
The scale of the reaction from Wall Street as well as what's at stake is captured nicely by this statement,
Wall Street lobbyists are waging a legal, political, and ideological war to stop Richmond and other upstart cities from taking control of their own destinies.
In the heart of the article, Prof. Drier does an excellent job of describing what, exactly, the LPR campaigns are trying to do and why.
What's all the fuss about?
In Richmond, a blue-collar Bay Area city of 103,000 people where home prices have plummeted by 58 percent since the 2007 peak, thousands of homeowners have lost their homes to foreclosure, and about 12,000 families--half of all homeowners with mortgages in the city--are underwater, their homes worth much less than their mortgages.
Groups affiliated with the Home Defenders League have been working with homeowners for several years, trying to get banks to modify their mortgages - called "principal reduction" - so that mortgage payments are in sync with current home values. Many economists, including Joseph Stiglitz and Mark Zandi believe that this is the best solution. If underwater mortgages were reset to fair-market values of homes, it would help homeowners and communities alike, and pump about $102 billion into the economy annually, according to a Home Defenders League report.
But homeowners who have asked banks to restructure their loans typically get a cold shoulder or a bureaucratic runaround. And so far, the Obama administration and Congress have been unwilling to require intransigent banks to reset loans, even though, as Yglesias observed in Slate, the administration has made several "head fakes" in that direction.
As a result, cities like Richmond have come upon a local solution - buying the mortgages, resetting the loans, and selling them back to homeowners at the current fair-market price. This week, as Dewan reported in her article, Richmond will send letters to the owners of 626 mortgages asking to buy them at the current market price. If they refuse, the city government will buy the mortgages using its eminent domain powers.
The problem is front-page news in part because Richmond is hardly the only city facing a frenzy of foreclosures and underwater mortgages. Despite rising home prices in some parts of the country, more than 11 million American families--one-fifth of all homeowners with mortgages--are underwater, through no fault of their own. If nothing is done, many will eventually join the more than 5 million American homeowners who have already lost their homes to foreclosure.
A number of other cities - including Seattle, Newark and Irvington, N.J, El Monte, CA, and North Las Vegas - have taken steps to pursue the eminent domain strategy. Many other cities are sure to follow, since there are many "hot spots" where families and cities are drowning in underwater mortgages.
You can read the full article here and you can stand with Richmond, CA as they take bold and pioneering action to keep struggling families in their homes here.