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Last week, the city council of Richmond in California's San Francisco Bay area voted 4 to 3 to adopt a plan crafted by Mortgage Resolution Partners that will allow the city to acquire mortgages with negative equity in an effort to revive the city's struggling housing market. The city will now be able to use eminent domain to seize mortgages for more than 620 delinquent and "underwater" properties if their loan holders refuse to sell them to the city at the properties' current appraised values, allowing the city to refinance them and reduce their principal. Richmond is the first city in the nation to approve such a plan. MRP failed to get other local governments — including San Bernardino County in Southern California and North Las Vegas, Nevada — to approve similar plans due to resistance from the mortgage industry and local real estate businesses. But in Richmond, MRP's effort was aided by the city's poor economic condition and its Wall Street-bashing Green Party Mayor Gayle McLaughlin. Richmond's residents have been "badly harmed by this housing crisis," McLaughlin said at a contentious city council meeting last week. "Too many have already lost their homes." Opponents countered that invoking eminent domain could put Richmond at risk of expensive lawsuits. "A 1 percent chance of bankruptcy from this program is a deal-breaker for me," said Councilman Jim Rogers. Others warned the plan could prompt a clampdown on mortgage lending or push up mortgage interest rates in the city of about 104,000 residents. The Federal Housing Finance Agency recently said it would press Fannie Mae and Freddie Mac to limit or stop doing business in locations where such plans are approved. Meanwhile, investors holding many of the mortgages targeted by Richmond's plan have sued to block it in U.S. District Court, saying it requires them to swallow losses. (REUTERS)
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