NYC City Council Members: Use Eminent Domain to Buy Back Underwater Mortgages

An idea that makes a lot of sense, in a lot of different ways, for a lot of different reasons:

"New York City Council members and housing advocacy groups called on Mayor Bill de Blasio on Wednesday to join them and help homeowners at risk of foreclosure, proposing the use of eminent domain to buy back underwater mortgages.

At a news conference, council members Donovan Richards, Mark Levine and I. Daneek Miller said eminent domain could be used to buy back mortgages from homeowners who owe more than their houses are worth. (continue reading)."

Here is a full-throated defense of the idea from Robert Hockett, a Professor of Law at Cornell Law School, published in the Daily News:

"The last time the U.S. experienced economic calamity and slow-motion recovery — from 1929 into the 1930s — the policy responses it adopted were profoundly innovative yet quintessentially American. This was largely because the President who took office in 1933, Franklin Roosevelt, had led New York — the nation’s center of creative dynamism in business, the arts and governance alike.

New York City should take inspiration from FDR’s ingenuity today by employing a home-foreclosure prevention tool that he pioneered."

* * *

The plan is necessary because the state of the city’s housing market — especially for its African-American and Latino communities — remains dire.

Manhattan fares reasonably well, but the other four boroughs do not. And as a new report issued by the City Council and the Mutual Housing Association of New York demonstrates, some 60,000 New York City homeowner families, disproportionately families of color, are in crisis.

Only the city’s power of eminent domain will help . . ."

The ending is perfect:

"There is what I like to call poetic justice in this plan.  In the recent past, eminent domain has been used to remove communities of color from their homes and their neighborhoods.  By “taking the loans, not the homes,” New York will be flipping that sordid history on its head — and benefitting itself and investors as well in the bargain." (link)

Barclays Accused of Predatory Lending Targeting Minority Homeowners in NYC

The story is available here, the class action complaint filed by MFY Legal Services is available here, and the press release is excerpted below:

"Plaintiff Tony Wong, a long-time Staten Island homeowner and school security officer for the New York City Police Department, alleges he fell prey to Barclays’ scheme to market risky, predatory mortgages in New York City’s minority neighborhoods. He claims that in September 2007, he was duped into refinancing with Barclays’ wholly owned subprime subsidiary EquiFirst Corporation.  With high monthly payments and an 11.075% interest rate, Mr. Wong’s mortgage was engineered to fail but only after his savings ran dry in his attempt to keep up with the mortgage payments. 

According to publicly available records, Mr. Wong was not the only minority who received a disastrous EquiFirst loan. During the year Mr. Wong’s loan was originated, the vast majority of the predatory loans EquiFirst issued in the New York City area were for homes in minority neighborhoods. Taking advantage of New York’s segregated housing market, Barclays, through EquiFirst, sold nearly 50% of its predatory loans to homeowners who lived in neighborhoods with 80 percent or greater minority populations. Mr. Wong’s home is located in a neighborhood that is now 69 percent minority and was 56 percent minority in 2007. These subprime mortgages were largely bundled, securitized and sold on Wall Street by investment banks like Barclays in the form of mortgage-backed securities. (link)"

MFY attorney Elizabeth M. Lynch explains:

“This lawsuit demonstrates that the profits Barclays made in the housing market run-up in the mid-2000s came on the backs of minority borrowers in New York City like Mr. Wong,” said Elizabeth M. Lynch, a staff attorney at MFY. “Barclays should be held responsible for its fraudulent conduct, and borrowers like Mr. Wong should be made whole for the suffering Barclays caused them. While the media touts the recovery of the housing market, communities of color are still reeling from the effects of the mortgage crisis.” (link)