Eminent Domain Update: It’s All to Help the Neighbors

Not much has happened in the past couple of weeks with Richmond, California’s use of eminent domain to help underwater borrowers. As I’ve said a couple of times, this is just a big scam by the firm supplying the capital, Mortgage Resolution Partners (MRP), and Richmond fell for it. It’s come out recently that the borrowers of the mortgages MRP is looking to seize are current on their payments. Banks and investors, not surprisingly, have no interest in giving these up and have filed a lawsuit to stop the plan. MRP pushed back with a ridiculous argument:

[MRP Chief Strategy Officer John] 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.

This is absurd. All of these mortgages were created before 2008, meaning that two-thirds of these borrowers have weathered the Great Recession and are still making on-time payments. These are performing loans. Investors love them. And now MRP is coming in and seizing them at well-below fair value to prevent them from defaulting in the future. After the economic disaster of the past six years, what are the odds that now these homeowners are going to default with the economy improving? Very low. And MRP is doing all of this is to help the neighbors!

Give me a break. The brashness of this argument is truly astounding. I have no idea how Richmond fell for it and I can’t imagine that any judge will as well. And it still overshadows the fact that eminent domain really could be a powerful tool to help underwater borrowers. What a shame.

Yes, Eminent Domain’s Use in Richmond, CA is Pure Fraud

Let the lawsuits begin.

I wrote last week about Richmond, CA had been duped by Mortgage Resolution Partners (MRP) into using eminent domain to “help” underwater borrowers refinance their homes through principal reduction. MRP supplied capital to the city so that it could purchase the mortgages from investors. Except MRP refused to pay more than 85% of the value of the home. For borrowers who were current on their mortgages, this was a blatant rip off. The value of those mortgages would likely be worth more than 85% the value of the original loan, significantly more than the value of the home. The question was: Were borrowers who are current on their loan part of Richmond’s plan?

The answer is a resounding yes and now investors have filed suit against the city:

The initiative has targeted mainly the loans of borrowers who are current on their payments, which make up 444 of the initial batch in Richmond, where the city council still hasn’t formally authorized the use of eminent domain. Mayor McLaughlin vowed to take the step on a July 30 call with reporters.

Richmond is going after 624 loans, of which more than 70% are held by borrowers current on their mortgages! This is an absurd rip off for investors, who are claiming they’ll lose $200 million under the plan. I’m not sure if that $200 million figure is right, but investors certainly will lose a huge amount of money. I can’t see how any judge will be fooled into thinking this is the “market value” of the loans. I’m pretty shocked that Richmond fell for MRP’s idea. This is just so blatantly illegal. It’s fraud. Yves Smith has more here, but all you have to know is that MRP is using Richmond to defraud investors and the city will ultimately pay the price.