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Thursday, August 15, 2013

Richmond's Million Dollar Eminent Domain Homes

Three of the mortgages Richmond, California is threatening to acquire through eminent domain have balances in excess of $880,000 - suggesting that the underlying properties were worth over $1 million at the peak of the housing boom. Public records show that two of the three properties did, in fact, change hands at prices in excess of $1 million several years ago. (On the 624 loans up for acquisition, the median and average outstanding balances are roughly $380,000.)

The three homes are all in the tony Point Richmond neighborhood. The accompanying picture, taken from Google maps, shows the house carrying the third largest mortgage in the eminent domain pool. The other two homes were apparently too far back from the road for Google’s van to photograph.

The biggest mortgage, with a balance of slightly over $1.1 million, is on a property that sold for $1.4 million in 2001 - well before the housing boom crested in 2006. The property currently has an assessed value of about $750,000 and Richmond is proposing to buy the mortgage for $680,000. The three bedroom waterfront home is 2500 square feet and sits on a 17,000 square foot lot - quite large by San Francisco Bay Area standards.

While this particular homeowner appears to be underwater, appraisals for such unique homes are prone to both error and volatility given the lack of recent comparables. Thus, the city’s “offer” to mortgage backed security holders may be significantly less than the homeowner could receive on the open market.

More importantly, the fact that such expensive homes are included in Richmond’s eminent domain initiative raises the question of what public interest is being served. Point Richmond is not a blighted neighborhood and any foreclosed home would likely sell very quickly. Further, anyone in a million dollar home is probably not poor - at least not by any conventional definition of the word poor.

Proponents of the use of eminent domain to resolve underwater mortgages see this as a way for the little guy to “take it” to Wall Street. While it is true that Wall Street made substantial profits packaging up pools of dodgy mortgages, Richmond’s action does not address that injustice. Those profits have already been taken: what remains are mortgage borrowers and MBS investors, many of whom are public employee pension funds.

So the question really is: Should the city of Richmond use eminent domain to transfer wealth from public employees (and the taxpayers that fund their pensions) to affluent homeowners who took on more mortgage debt than they should have?


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For an update on this, visit the Wall Street Journal's coverage or the San Francisco Chronicle's coverage.

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