The city council in Richmond, Calif., decides Tuesday whether or not the municipality will become the first in the nation to approve the use of eminent domain to seize underwater mortgages for the borrowers' benefit.
The vote on eminent domain is expected to occur during the early evening hours.
Larry Platt, a law partner at K&L Gates, sees the program facing a great deal of ongoing resistance even if it gets the green light from Richmond's City Council.
The attorney already finds it interesting that Richmond recently tried to sell municipal bonds to Wall Street banks, but had no takers.
"The vote itself doesn’t actually create the seizure, it’s the seizure that will create the problem,” Platt noted.
Platt said approval of the program "will further reduce demand for their bonds and further create impediments for their citizens getting mortgage loans."
Still, Richmond continues to move forward and has captured local support.
San Francisco Supervisor David Campos revealed plans to propose a similar resolution to get the County Board of Supervisors in San Francisco behind eminent domain as a tool for dealing with underwater borrowers.
Tuesday's Richmond council meeting is expected to draw homeowners who are supportive of the plan, along with dissenters. Cornell Law Professor Robert Hockett will be on hand to present his ongoing support for the idea of using eminent domain after stirring up controvesy with his public support of the plan.
Amy Schur, campaign director for the Alliance of Californians for Community Empowerment, told HousingWire that supportive community residents have been organizing around the proposal for the last six months. “I expect there to be tremendous celebration from the community,” said Schur.
Schur noted that throughout the mortgage industry, fears still linger on about what the impact will be on municipal bonds and lending in the community.
"There will be a lot of hoop and holler, but we believe the city is on solid ground legally," said Schur. "It’s actually a win-win-win solution," she joked.
K&L Gates and industry lawyer Larry Platt says there's one distinct outlier in the entire debate: the viewpoint of the Federal Housing Administration.
Platt says the agency has been unwilling to show its cards on the eminent domain issue even though the plan is predicated on the idea that FHA will refinance the loans.
"FHA is still holding itself out as a potential enabler," said Platt. "I don’t think they’re going to show their cards until they’re forced to."
The Federal Housing Finance Administration and various mortgage industry trade groups have already expressed serious reservations about the plan's impact on the entire mortgage finance space.
Story Developing — HousingWire will be making periodic updates throughout the day as the Richmond City Council edges closer to a decision.