Today, the Board of Supervisors will vote on my resolution to negotiate a partnership with Richmond on an innovative program to help struggling homeowners who have been hung out to dry by the banks.
While the booming real estate market has made the foreclosure crisis a distant memory for most of San Francisco, there are still many homeowners in The City struggling with underwater mortgages or mortgages at risk of foreclosure because of predatory lending. These distressed mortgages are overwhelmingly in working-class communities of color in the southern parts of San Francisco.
For thousands of these homeowners, it is virtually impossible for them to obtain a loan modification because their loan has been bundled into mortgage-backed securities, called private-label securitization (PLS) trusts.
The homeowners had no say in the securitization of their mortgage. They simply got a letter from their bank saying that their mortgage had been bundled with a bunch of others and sold to investors. Because these mortgages are now owned by hundreds of faceless investors, it is virtually impossible for the homeowners to refinance their loans. Many of these PLS loans contain predatory features (adjustable interest rates, balloon payments, etc.) that increase their risk of foreclosure.
Richmond has a plan to help these homeowners called Richmond CARES (Community Action to Restore Equity and Stability). The CARES program would offer to buy these mortgages at their current fair market value. If the PLS trusts are unwilling to sell, CARES would use eminent domain to acquire them.
Eminent domain would only be used to acquire the troubled mortgage — not the actual title of the property. Because the current fair-market value of these risky PLS loans is now less than the original loan value, CARES would be able to refinance the loan and write down the principle. The homeowner would get a new, reduced mortgage and the CARES program would realize a profit to pay for the program.
Keep Your Home California, the state's homeowner assistance program, also has hundreds of millions of dollars that could help fund principle reduction for these mortgages — but only if we're able to pry them out of the PLS trusts.
Richmond is looking to form a joint powers authority with other cities to implement the CARES program.
There are currently 8,000 of these PLS loans in San Francisco. Approximately 300 are underwater, and another 400 are delinquent. But there is a bigger ticking time bomb looming in the future: 5,000 of these PLS loans have adjustable-rate mortgages that will have an interest rate increase in the next 18 months.
Unfortunately, the banks may be threatening to resist the program. The City has a choice: Either we admit that our fear of the banks' retaliation is greater than our desire to help these working-class families, or we join Richmond in standing up to Wall Street's threats.
My resolution is only a first step in this process. It would direct the city controller to negotiate the specifics of the CARES program to ensure that participating in the program would not cost The City anything and that the joint powers authority would limit our potential liabilities.
The Board of Supervisors would only sign off on joining the CARES program if we are satisfied with those assurances and that the details of the program pencil out.
Today, I am asking my fellow board members and the mayor not to give into Wall Street's threats before we give the CARES program a real shot. We owe at least that much to these thousands of San Francisco families struggling with predatory mortgages.
John Avalos represents District 11 on the Board of Supervisors.