Several fair housing and civil rights groups have come to the side of the City of Richmond, California as it attempts to use its power of eminent domain to buy and modify underwater mortgages on some local homes. The coalition has filed an amicus brief in federal court today supporting the City's opposition to a motion filed to block its proposed purchases.
A thorough background of the issue can be found in MND reports here, and here , but briefly, Richmond, generally described as a working class northern California city, has sent letters to 32 mortgage servicers offering to buy 624 mortgages at the fair market value of the underlying property, in some cases 25 cents on the dollar, and apparently making clear its intention to use eminent domain if the offers are not voluntarily accepted. Wells Fargo Bank and Deutsch Bank subsequently filed suit to block the plan.
The eminent domain plan - earlier proposed in several other cities including Chicago, has been vigorously opposed by the securities industry and by the Federal Housing Finance Agency (FHFA) as regulator of Freddie Mac and Fannie Mae. Both have stated that it could result in severe restrictions on future access to mortgage and possibly other types of credit in any municipality which so acted. A California congressman has twice introduced a bill which would outright prohibit any government entity from purchasing or guaranteeing a mortgage in any community so invoking eminent domain.
The amicus brief argues that the form of the opposition threatened by the securitization industry would amount to illegal redlining and would violate federal and state fair housing and fair lending laws, including the federal Fair Housing Act. Attorneys for the coalition say this argument is based on an announcement made last summer by the Securities Industries and Financial Markets Association (SIFMA) that it would block any future mortgages made in Richmond from being accepted in the most desirable part of the secondary market for mortgage-backed securities (MBS). Richmond is 40% Hispanic and 25% African-American, and the fair housing and civil rights groups argue that the SIFMA plan would therefore have a disparate impact on minority borrowers.
Marcia Rosen, Executive Director of the National Housing Law Project, one of the parties filing the brief, said, "The Banks' attempt to prevent Richmond from responding to its foreclosure crisis is especially egregious given their role in the predatory lending underlying the crisis. And the assertion that the injunction is necessary to protect the public interest from their own threatened redlining of the city must be seen for what it is -- discrimination in violation of the Fair Housing Act that would further harm this beleaguered city and its residents."
Also participating in the brief are Housing and Economic Rights Advocates, Bay Area Legal Aid, the Law Foundation of Silicon Valley, and the California Reinvestment Coalition,
A hearing on the trustees' motion for a preliminary injunction and the City of Richmond's motion to dismiss the case will be held on September 12, 2013 at the U.S. District Court for the Northern District of California.