San Francisco may become the first city to partner with nearby Richmond on a groundbreaking program that would use eminent domain to lower home mortgages.
Richmond was one of the hardest-hit cities in the Bay Area by the foreclosure crisis, but San Francisco has also felt the impacts with thousands of homeowners continuing to live with financial insecurity saddled by mortgage costs that could displace them.
Richmond Mayor Gayle McLaughlin is championing a program that would empower cities to use eminent domain power to seize underwater mortgages, which have a higher balance than the value of the home, from financial institutions and refinance them for the homeowner. While financial institutions have sued and criticized the effort, McLaughlin is asking cities like San Francisco to form a joint powers agreement to make the program a reality.
The Board of Supervisors will vote Tuesday on whether to authorize negotiations to enter into the agreement under a proposal introduced by Supervisor John Avalos. To actually join would require a subsequent vote. The proposal was approved Wednesday by the board's budget committee.
“The issue of distressed mortgages is real in San Francisco,” Avalos said. “Data shows that there are hundreds of homes at risk right now and there are thousands more potentially at risk in the next few years. There is currently no tool available to really help these homeowners.”
Avalos currently has the support of supervisors David Campos, Jane Kim and Eric Mar. Approval would require at least six votes.
Mayor Ed Lee's administration opposed the proposal Wednesday, raising concerns about impacts to The City's borrowing interest rates.
“It is the same banks that you are going after that are buying your bonds,” said Nadia Sesay, director of public finance. “They could respond by higher interest rates. But we don't know what that impact will be.”
Olson Lee, director of the Mayor's Office of Housing, noted San Francisco has long enjoyed favorable interest rates, but a consequence of the eminent domain initiative could be “either we lose access to the borrowing or we actually just pay more to accomplish the same thing because we are no longer getting the San Francisco discount.”
The housing director said he would prefer to work directly with the homeowners, but Avalos said The City has not had success with that.
Use of eminent domain takes a supermajority vote by local bodies to approve, but establishing a joint powers agreement would take a simple majority. Supporters add there is also the benefit of pooling resources.
“It's a better approach to do an economies of scale when you put loans together from different cities, but we also felt like a national movement is important,” McLaughlin said, adding that the agreement would also help indemnify cities.