Washington Post blames Richmond, CA for keeping Wall Street up at night

The Washington Post took a closer look at Richmond and the California city's efforts to use eminent domain to fight foreclosure blight.

The newspaper described Richmond's use of eminent domain to seize underwater mortgages, often sliced and diced and locked up in mortgage-backed securities, as the "nuclear option."

The Washington Post accurately notes that as Richmond goes, so goes the nation. Or at least its hardest-hit communities such as those in North Las Vegas, San Bernardino and Chicago. We can be certain the floodgates will open if Richmond is successful in fighting foreclosure blight by requiring investors to recognize the losses they've incurred on mortgages by forcing their sale, at today's valuations, through eminent domain.

Wells Fargo (NYSE: WFC) and Deustche Bank, in their roles as bond trustees, have sued the city of Richmond over its attempt to use eminent domain in this fashion. Richmond Mayor Gayle McLaughlin was locked out of the bank's San Francisco headquarters in August when she attempted to meet with Wells Chairman and CEO John Stumpf.

http://www.bizjournals.com/sanfrancisco/blog/2013/10/foreclosures-richmond-eminent-domain.html?ana=e_du_pub&s=article_du&ed=2013-10-07&page=all

Richmond’s rules: Why one California town is keeping Wall Street up at night

Very early on a Wednesday morning in September, the city council of Richmond, Calif., did something that no American city had yet managed: It voted for a plan to wrest underwater mortgages from the hands of Wall Street, depriving investors of tens of millions of dollars in order to save borrowers from foreclosure.

For communities across the land -- North Las Vegas, San Bernardino County, Calif., Chicago -- where too many are stuck with house payments beyond what they can afford, this was the nuclear option. While those cities backed away, Richmond hit the button.

The mechanism? Eminent domain, the power of the government to seize private property for public use, which has not typically been used to help poor neighborhoods. After five years of the federal government gently nudging banks to forgive homeowners debt they took on in better days, cities have found a legal weapon the financial industry truly fears.

The stability of those housing markets, and the banks that profit from it, could depend on the fallout.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/05/richmonds-rules-why-one-california-town-is-keeping-wall-street-up-at-night/