A California city has come up with an unusual way to keep its residents out of foreclosure: Take over their mortgages.
Richmond, Calif., launched a local principal reduction plan, a controversial program that would allow the city to purchase underwater mortgages. Failing that, the city will use eminent domain to purchase the loans. Then the city would refinance or modify their mortgages to reduce the principal to a level more in line with current market values throughout the struggling city.
The city has partnered with Mortgage Resolution Partners (MRP), an advisory firm that has lined up the funding to purchase the loans and technical support to carry out the program. The company has promised the program won’t cost taxpayers a dime, and homeowners who opt in to the program will pay a flat $4,500 fee.
City officials are hoping the unusual plan will save Richmond from its desperate situation. Home prices have plummeted 43 percent since their 2007 peak, leaving half the homeowners with mortgages in the city underwater. The city’s coffers have suffered, too, due to the steep reduction in property taxes paid, and it has slashed its budget repeatedly, making it harder to keep up with road repairs, offer basic services and combat the uptick in crime.
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