Due to the rightward march of the Democratic Party and the stronghold that corporations have on the two-party system, many activists on the Left have abandoned electoral tactics to advance our agenda for social and economic justice.  It doesn't have to be that way though.  In the United States, the Green Party has 134 elected officials at last count and continues to grow.  And in every place that has an elected Green, you can see clearly that there is a different way of doing politics. The list of Green-initiated policy goes on and on, but in this post I wanted to review an innovative program that one of these elected Greens has recently been at the forefront of, and has even made national media headlines for. And that would be the use of eminent domain by the City of Richmond, California to rescue homeowners from bank foreclosure.  Richmond is the largest city in the country led by a Green Party mayor, Gayle McLaughlin, and if Rochester votes Green this November we could see this program come to our own community.

The use of eminent domain, or the seizure of private property for public use, by the various levels of government is authorized by a phrase in the Fifth Amendment to the US Constitution stating "nor shall private property be taken for public use, without just compensation."  While this text originally had a very narrow interpretation, over the years the court system has broadened eminent domain from public use to public good.  And more and more, government has been using the power of eminent domain for the purposes of corporate welfare, transferring land owned by private citizens to corporations that required by law to seek profit over the public good.

Mayor McLaughlin, however, has flipped this trend on its head.  Recognizing that it is not in the public's interest to throw families out of their homes, creating large numbers of vacant houses and increasing the homeless population, the City of Richmond is using its powers of eminent domain to seize the underwater mortgages of these families from abusive banks such as Wells Fargo and Bank of America. The City is then able to work with the families to refinance with community-oriented financial partners and return their homes to them. Wall Street has obviously not taken too kindly to this plan, recently suing the City of Richmond to shut down this uppity Green Party mayor.  But regardless of the outcome of this lawsuit, it is time for the People's Government to act on behalf of the People, bailing out it's communities not it's corporations.

Since is this is obviously a complex program, make sure to read through these FAQs provided by Mayor McLaughlin to get a better idea of how this program would work:

Q: Is this a legal use of the eminent domain law?

A. Yes, we believe it is. While this will definitely be raised by the Wall Street interests, numerous legal experts are confident of its legality and there is precedent for using eminent domain for similar purposes and in a similar manner in the past.

Q: Will this program take people’s homes?

A. No. The entire goal of this program is to keep people in their homes. Mortgage loans are often bought and sold many times. In this case, the City will become the owner of the loan for a short period of time, during which they will help the homeowner refinance into a new loan with reduced principal, saving the homeowner thousands of dollars every year.

Q: Is this just another scheme that could in fact leave homeowners worse off?

A. No. We have developed a series of ten core principles that any program must meet to get our support. One of those principles is that no homeowner must be left worse off as a result of the program, and another is that it is a voluntary program. We believe that if the program is designed correctly, only those homeowners who benefit will opt into the program.

Q: Will homeowners be forced or pressured into this program against their will?

A. No. Again, homeowners will have a choice as to whether or not to enter into the program, and will be encouraged to consult a HUD-certified housing counselor before making that decision.

Q: How will the City pay for this program?

A. The City can pay for the program by partnering with private investors who have the capital to acquire the loans and cover the costs of the program, both operational and legal. The City would be in charge, making all programmatic decisions and designing the program, but the money would come from these investors.

Q: Are there private investors ready to do this, and how do we know they can be trusted?

A. There is at least one group we know of that is ready to arrange private funding: Mortgage Resolution Partners (www.mortgageresolutionpartners.com). They are already partnering with various cities to explore options to address the underwater crisis. There may be other groups as well. The credentials and history of any potential partners should be explored. In order to get our support, any private partner must agree to our core principles that include essential homeowner, tenant, community, and taxpayer protections.

Q: Will the private investors make money off of this?

A. Yes. These investors will be able to make money off the difference between the market value of the old mortgage loans and the proceeds of refinancing them (reduced by program costs). This will not cost homeowners or the City anything, and at the end of the day, homeowners will have substantially lower mortgage payments.

Q: What’s the risk for the City?

A. Public entities can create an authority to provide a degree of protection. There is a real chance Wall Street banks may sue. Our core principles state that the implementation of the program should not cause taxpayers to incur significant expenses, such as the legal costs of defending the program, and that the program must indemnify taxpayers from legal and financial liabilities. We will not support any program that does not meet these criteria. We believe that some potential partners, like MRP, will commit to this. This is a critical question we should ask any private investor group that the City considers partnering with.

Q: Won’t this create a huge administrative expense for the City?

A. One of our core principles is that the implementation of the program should not cause taxpayers to incur significant expenses. We will not support any program that is not able to abide by this principle. We believe that some potential partners, like MRP, will commit to this.

Q: How will tenants in rental units be affected?

A. Tenants often face eviction after their landlords go into foreclosure. We believe that any program must be designed to maximize the benefit to tenants and minimize tenant displacement. By reducing principal on underwater properties and stabilizing property values, we believe this program will help tenants by making their landlords less likely to default. Furthermore, the foreclosure crisis has driven up the cost of rentals because millions of families who used to own a home have been forced into the rental market. By ebbing the coming tide of foreclosures, this program will also ease pressures on rent prices.

Q: Who is against this?

A. The leading group opposing this is the Securities Industry and Financial Markets Association (SIFMA), which is the trade association for the banks, securities firms, and asset managers. SIFMA’s Chair-Elect is a the Chief Operating Officer of Morgan Stanley, and its membership includes the securities units of Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs, and AIG. These are the same firms that caused the foreclosure crisis and lobbied to prevent federal relief for homeowners. Now they are trying to stop our communities from taking action at the local level to fix what they broke.

Q: Some realtors are worried that this will reduce neighboring home values. Is this true?

A. No. The concern stems from the misunderstanding that through this program properties are being sold at below market value and so will factor into the “comps” – what comparable homes are selling for in the area - when the price of other homes is determined. This is not the case. These homes are not in fact being sold. The loan is being sold, or taken through eminent domain. The house itself will not be going through the sale process. This program will in fact bolster home values since it will reduce the number of foreclosures, thereby preventing further negative impact on area home values.

Q: Will the future cost of credit in our community go up, as the opposition is saying?

A. SIFMA and other Wall Street groups are threatening that future mortgage lending in communities that adopt this program will be more expensive. They claim that having loans taken from investors using eminent domain creates uncertainty in the market and therefore SIFMA’s member are threatening to not buy loans from these communities. There are several reasons why we believe this is a threat intended to frighten localities out of taking action, rather than a realistic prediction of what would happen:

1) Industry observers point out that there is enough competition in the mortgage market that where there is money to be made there will be lenders ready to make loans, and investors willing to finance them. Trade associations may make threats, but they do not actually control the profit seeking behavior of their members, the institutions that actually make and trade loans.

2) As proposed, this program will only be used with loans owned by Private Label Securities (PLS) – pooled loans owned by groups of private investors. This program is not being proposed for any loans owned by Fannie Mae, Freddie Mac, the FHA or the VA. These (quasi) government agencies are buying or insuring 90% of new loans being made (different from the many lenders originating loans). We trust that our government will not redline our community and refuse to buy or insure future loans.

3) This program is being proposed in response to the current crisis. This use of eminent domain only makes sense, and meets the legal bar of a “public purpose”, because of the large numbers of homeowners who are deeply underwater. Also, if cities so choose, in an abundance of caution, they can impose a sunset on the program, to reassure the financial industry that they do not intend to implement such a program as a normal or even periodic, course of business.

Q: Has SIFMA really threatened to redline communities that dare adopt such a program?

A. Yes. SIFMA has threatened to try to prevent loans made in our communities from being traded on the secondary market, making lending in our community more difficult. Our cities are taking action locally to fix the mess that Wall Street created, and now SIFMA, the trade association that represents these Wall Street institutions, is threatening to refuse loans from our community. They peddled predatory loans to our communities and now they are trying to bully us out of helping our homeowners survive this crisis. The finance industry has a long history of drawing on this threat when they are opposing a new program or regulation. When our local governments considered policies to curb predatory lending, we heard these threats. Some states proceeded to pass laws prohibiting certain predatory lending practices, and the cost of credit in those states did not go up. Too often, Wall Street’s threats succeeded in scaring elected officials, predatory lending went uncurbed, and we ended up with a devastating foreclosure crisis.

For Further Research:

California City Threatens to Use Eminent Domain to Stop Bank Foreclosures, Democracy Now! August 6, 2013.

California Mayor Appeals To Bank CEO's 'Conscience' To Help Struggling Homeowners, Huffington Post.

Wall Street Lobbyists Nervous As Cities Use Eminent Domain to Protect Homeowners, Huffington Post. 

A City Invokes Seizure Laws to Save Homes, New York Times.