Living in California, I am near several cities that have been destroyed by the financial crisis and the end of the housing bubble. When I was a senior in high school in 2008, the north Bay Area city of Vallejo declared bankruptcy, something that was not in the realm of possibility a decade prior. Several others have followed suit- many with over 100,000 residents. The collapse of the housing market, and with it the construction industry, have decimated many of these bedroom communities- Stockton, to the east, finally has unemployment in the low teens, but for years struggled with rates approaching 20%. Worst of all is the huge portion of families who have mortgages to pay in excess of the current, post-bubble value of their home. Often foreclosure has become a question of when, not if.
The city of Richmond, California is implementing a strategy of buying devalued mortgages, then re-selling to the same people who were in the foreclosure process. This comes with teeth, as lenders who refuse to sell these mortgages will have them taken using the power of eminent domain. This power makes a prominent appearance in the Constitution and state charters- the Fifth Amendment ends with the declaration- “nor shall private property be taken for public use, without just compensation.” These banks that hold the devalued mortgages can have them seized by the city, and paid what they are worth. The mortgages are then refinanced and the homeowners pay far less a month, keeping houses full and money free for spending locally.
The investment firm MRP has been trying to get cities to try the process, but the large legal threats by various corporations (many of these mortgages are owned by large Wall Street banks and investors) has meant that Richmond is the first. The city has prided itself on progressive and in this case, unusual solutions to the problems that have faced similar cities like Vallejo, Modesto, and the state capital Sacramento. That they are doing something ad odds with traditional business interests should not been a huge shock, as Gayle McLaughlin, the two-term mayor, is a member of the Green Party of California. She and a Democratic city council voted unanimously in favor of the plan, made possibly in part by the fierce campaigning of a social group called the Alliance of Californians for Community Empowerment (ACCE). Having met and worked with ACCE members, they’ve been working on all scales- from mobilizing occupations of individual homes to prevent foreclosure, to city and state-wide efforts such as this. It’s heartening that this community spirit is finding allies both in local government.
We have a zombie economy presently- people stuck in debt from houses and investments that are worth far less than they did at their peak. The idea that people are paying 300k on a house now worth 175k is ridiculous, and it drags all other aspects of the economy down. If we want vibrant downtowns with lots of local businesses and active community support, the anchor of mortgage debt has to be dealt with.