The city of Richmond, California, has proposed a policy that would entail the use of eminent domain in acquiring the mortgages paid by its residents. Mayor Gayle McLaughlin based her policy on the premise that many residents of Richmond have been suffering from massive homeowner debt brought forth by the decreasing value of houses. Many residents in Richmond have yet to settle their mortgages, many of which are much more expensive than the actual value of their homes and thus called “underwater mortgages”. Mayor McLaughlin explained that the use of eminent domain by her office would greatly benefit Richmond, which already saw several of its residents leave due to their failure to pay underwater mortgages. Many residents of Richmond contend that many of them have lost their motivation to pay their underwater mortgages due to the decreasing value of their houses, which has placed some under risk of default for nonpayment (Dewan, 2013).
The policy would entail the Richmond city government to purchase around more than 600 underwater loans with a foundation made out of steady community support, the assistance of the firm Mortgage Resolution Partners (MRP), investors and other nonprofit organizations made for the cause. The Richmond city government plans to buy mortgages for around 80% the original price of the homes in order to save homeowners the risk of placement under default. The challenge for Mayor McLaughlin and the rest of the Richmond city government, however, is that it faces strong pressure from several financial institutions across the United States (US), particularly banks, which have long argued that using eminent domain to acquire mortgages is an unconstitutional act. In fact, cities that have featured somewhat similar attempts to that of Richmond either have pulled out of their plans or have faced heavy court challenges from financial institutions (Dewan, 2013).
The Purpose of the Policy
The Richmond city government has a simple purpose for its policy on using eminent domain to purchase underwater mortgages – it aims to save its residents from the impending threat of losing their homes. Underwater mortgages have severely affected the payment prospects of residents in Richmond that many of them have lost the will to pay for their balances, with some at risk under default. Richmond has yet to benefit from the housing recovery program set by the federal government, which is supposed to stop the decrease in value of houses and raise it to higher levels. Mayor McLaughlin and the rest of the Richmond city government have expressed their dismay over delays on housing recovery reforms, saying that many of their residents have already left because they cannot pay their underwater mortgages anymore. To save Richmond from depopulation and subsequent decline in economic activity, its city government came up with the eminent domain policy to help save their residents. At the same time, the Richmond city government plans to challenge financial institutions, particularly banks, with the policy, given that those would set their challenge against the policy before the court. Atty. Robert Hockett, one of the proponents of the policy, defends the constitutionality of the policy since the Richmond city government satisfies the requirement of eminent domain stating that such should promote the welfare of the public. Hockett noted that the policy entailing the use of eminent domain to purchase underwater mortgages stands to benefit the residents of Richmond by preventing them from losing their homes and getting more burdens from their inability to pay underwater mortgages (Dewan, 2013).
Stakeholders and Their Respective Stakes on the Policy
The policy of the Richmond city government involves several stakeholders, including itself. Under the leadership of Mayor McLaughlin, the Richmond city government stands as the buyer of underwater mortgages under the policy, which is subject to the use of eminent domain. At the same time, the Richmond city government has the position to defend itself against challenges and pressures coming from financial institutions, mostly involving banks. Financial institutions, as stakeholders, have the prevailing contention against the use of eminent domain in purchasing underwater mortgages, citing implications against their integrity. Finally, residents of Richmond afflicted by underwater loans stand as the main beneficiaries of the policy their city government plans to implement. As most of affected residents of Richmond suffer from the inability to pay underwater mortgages, the policy benefits them through an offer to purchase from the government worth 80% of the current value of their houses, which is enough to save them from being placed at default (Dewan, 2013).
Implementation of the Policy
The Richmond city government plans to implement the policy through a series of purchases and debt write-downs. Firstly, the Richmond city government will release invitations indicating their desire to purchase underwater mortgages for 80% of the current price of houses. Residents who agree to their respective invitations not only get the opportunity of having part of their underwater mortgages purchased, as they also benefit through a further discount when the city government writes down their debt to a certain percentage. In return, residents may seek to refinance the new written-down amount of their underwater mortgage debt with the help of a city government program suited for the purpose. Part of the refinanced amount goes to the city government, which then circulates the payment for its underwater mortgage purchase fund, investors, nonprofit organizations and the MRP. The Richmond city government holds the responsibility to sustain the foregoing cycle to ensure its long-term stability (Dewan, 2013).
Application of the Moore Triangle and Prediction of Outcome
The Moore Triangle is a model that could determine the outcome of the policy of the Richmond city government on the use of public domain for acquiring underwater mortgages. The first point, legitimacy and political sustainability, comes under the part where the Richmond city government, according to Atty. Hockett, defends the use of eminent domain through the promotion of the welfare of its residents coming under debt from underwater mortgages. Financial institutions, especially banks, challenge the use of eminent domain to purchase underwater mortgages through an assertion on its unconstitutionality due to its detrimental effect to the integrity of the financial system. Yet, such finds a formidable counterchallenge from the community support the policy generates that translates to the formation of nonprofit organizations, investors and firms that would ensure the stability of policy implementation. The second point, substantial value, relates to the objective of the policy to save affected residents of Richmond from having to vacate their homes due to placement under default or inability to pay underwater mortgages. The third point, operational and administrative feasibility, comes under the setup of the policy explained by the Richmond city government, which involves community support, investors, nonprofit organizations and the MRP. Given that the setup ensures the stability of the policy upon full operation and duly fulfills the public good through alleviating the plight of affected residents of Richmond, the policy of the Richmond city government would succeed. Such may even stand out as a successful precedent on the main controversy in court if it is successful in defending it against financial institutions threatening to challenge it (Dewan, 2013).
References
Dewan, S. (2013, July 29). A city invokes seizure laws to save homes. The New York Times. Retrieved from http://www.nytimes.com
