Out of Control Policy Blog

Richmond CARES?

Richmond, California's public housing is dilapidated, unsafe and infested with vermin. These were the conclusions of US Department of Housing and Urban Development inspectors and of an investigative report published by the Center for Investigative Reporting (CIR), The San Francisco Chronicle and KQED.

Problems with Richmond public housing are both disturbing and long-lasting. The CIR investigation reports complaints going back several years, while 2009 media reports still available on line show that bedbugs have been long time occupants of the Richmond facilities. HUD audits and other sources also show that the Richmond Public Housing Authority has misappropriated federal funds and gotten itself into a financial crisis.

During these years of mismanagement, the Housing Authority has reported to Mayor Gayle McLaughlin and the City Council. These officials make up seven of the nine members of the city's housing commission. Housing Authority business is conducted as part of the weekly City Council meeting.

Instead of effectively addressing blighted public housing, City officials have spent considerable time debating an untested measure for preventing blight in the private housing stock: using eminent domain to take over underwater mortgages.

The theory is that foreclosed properties often deteriorate while under bank management, so blight can be avoided by keeping owners in their homes. While that makes sense, the Richmond CARES eminent domain program is poorly targeted at this effect. 

The initial pool of 624 target homes contained 444 properties with mortgages that were performing six years after they had been underwritten. Mortgages that are in good standing after six years rarely go into default - especially in a rising housing market.

Further, the pool contained homes in relatively upscale neighborhoods like Point Richmond, the Richmond Marina and the Country Club section.  Forty-three of the homes carried mortgages in excess of $600,000, and a couple even changed hands for more than $1 million before the 2008 downturn.  Since these findings were reported in a Wall Street Journal blog and by the San Francisco Chronicle, the Council decided to exclude high value properties in affluent neighborhoods from the program. But a majority of the affected loans will still be performing and thus in no immediate danger of foreclosure.

Aside from being an ineffective solution to blight, the eminent domain program has triggered litigation and jeopardized the local mortgage market. Lenders have expressed reluctance to issue mortgages in a community that has demonstrated a disregard for the sanctity of contracts. If mortgage money dries up in Richmond, the result could be additional foreclosures as short sales become more difficult.

Richmond's private sector ally in the eminent domain program - Mortgage Resolution Partners (MRP) - has agreed to shoulder the city's litigation expenses. But this promise may be hollow:  the company does not appear to have any revenue and the firm's CEO recently moved on to start another venture. If MRP is unable or unwilling to support Richmond's condemnation efforts the city would be liable for large legal expenses and potentially adverse judgments if it chooses to proceed.

Under the circumstances, the best thing that the Mayor and Council could do for the community is drop the eminent domain project and instead focus their anti-blight efforts where they can really make a difference:  in the city's very own public housing.

See more from Marc Joffe on Richmond underwater mortgages:

Marc Joffe is Research Associate


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