Richmond Figures Out a Way to Help Homeowners, and Banks are Angry

First time homeowners Morris and Luajana LaGrande, of Richmond, California were excited when they purchased a home for $310,000 in 2004 — and when the opportunity to refinance at nearly half a million dollars arose, they took it, making some improvements to their home like so many people did across the United States. But then 2007 happened, and the couple watched the value of their home plummet. They were forced to scrimp, save and struggle to conserve every penny and send it to their lender, and they watched the same thing happen to many of their neighbors.

In Richmond, as in many locales, underwater mortgages are ubiquitous, but they’re especially bad here. It’s estimated that more than half of the homes in the city, which is set under the looming shadow (both metaphorical and physical) of a Chevron refinery, now have mortgages worth far more than their value. Such loans are prime risks for default, which is in turn a significant risk for urban blight in a city already struggling with poverty.

Residents of Richmond, which is primarily Black and Latino, experience a poverty rate twice that of their fellow Contra Costa County residents, with about one in five people in the city living in poverty.

Solving this problem has become a pressing issue for city officials, led by mayor Gayle McLaughlin, and she’s come up with an innovative approach, drawing upon lessons from other cities and economists. She suggests buying the mortgages out at fair market value and reassigning them, allowing homeowners to stay in their homes with more manageable monthly payments. This approach is designed to promote homeownership, reduce the risk of urban blight, fight poverty and stabilize the market.

Many banks, however, are opposed. They argue that fair market value as determined by the city might not necessarily be unbiased, and they don’t want to sell the mortgages at reduced prices. That’s why McLaughlin has suggested a second component of her plan. If banks don’t take the initial offer (so far the city has sent out more than 600 offers), the city will seize the properties from the banks, citing eminent domain, a historic precedent allowing governments to take properties for public use. But is this really fair use of eminent domain, an already controversial activity? Banks don’t think so, and they’re willing to take that bet to court if they have to.

They’ve threatened to reconsider doing business in cities that put such plans in place, and a warning shot has already been fired across the bow in Richmond, where a recent bond offering elapsed without any takers. The city could end up caught in a game of chicken with financial institutions as it pushes the foreclosure plans through and struggles with unintended consequences.

Several cities have already proposed, and then backed down from, similar plans, in response to pressure from financial institutions. Does Richmond have what it takes to enact this approach and stay the course? Some argue it does, thanks to strong grassroots support from the city and social justice organizations, along with the sheer force of will represented by the mayor, a member of the Green Party who firmly believes in social justice and progressive politics (in fact, she’s been accused of pushing this agenda less in the interest of the city and more in the interest of a personal vendetta against the financial industry).

If Richmond does pull it off, other cities are going to take note, and may initiate similar programs to address foreclosures in their neighborhoods. The result could be some explosive changes to the real estate and financial industries in the United States, something large mortgage institutions desperately don’t want…so prepare for some heavy-duty lawsuits.

Photo credit: kris krüg.


Jim Ven
Jim V1 years ago

thanks for the article.

Jose L.
Jose L.4 years ago

It's a privilege to be a bank. It doesn't get much nicer than sitting back and collecting interest and appreciation. What are they going to do, leave and take a huge hit in revenues/earnings and leave the market and profits to those who stay behind? Leave the market to Richmond itself if it opens up a community bank?

I suggest that Richmond start building its banking infrastructure (or partnering) as they send out the offers and wait. As banks leave, Richmond will be there to profit.

GGmaSheila D.
GGmaSheila D4 years ago

Hope this program goes through. It will stop the Mega Banks from swindling the people any more than they already do. Kudos to Richmond, and their savvy mayor.

Susan T.
Susan T4 years ago

Margaret G is right. Even 9 years ago in a northern part of the greater Bay area in CA, $100,000 would not buy a parking space.

Margaret Goodman
Margaret G4 years ago

Susan F. asked why the LGrandes did not buy a less expensive home, say a $100,000 place.
My memories of the 2004 real estate market in the San Francisco Bay Area are that $300,000 was the rock bottom price for a home. $100,000 probably would not buy anything.

Franck Rio
Past Member 4 years ago


Danuta Watola
Danuta W4 years ago

Thank you for the information.

Lynn C.
Lynn C4 years ago


Susan T.
Susan T4 years ago

end of post

But time & time again, the banks did it because they saw a way to make quick cash upfront on fees & commissions & then unload the loans on another bank, or even just on the FDIC insured branch of their own bank, thus potentially dumping it on the taxpayers. And some people just lost their jobs unexpectedly.

I'm good with this program. The banks can write off the loss - it's easily recouped from the advantages they receive. And it's better for the communities to keep people in their homes & participating in the local economy.

Susan T.
Susan T4 years ago

Lindsey O - I'm sorry bad economic times - & people defaulting on contracts - have adversely effected the business you work for. But it's apples & oranges between Big Banks & the sole proprietor for whom you work.

Big Banks get millions & millions in 0% or very low interest loans from the Fed. Do they pass any of this gift down to the taxpayers, the people whose taxes pay for such largesse? No. Do homeowners get the same incredible advantage of borrowing at 0%, which enables Big Banks to make Big Money by borrowing at 0% FROM THE FED & then lending or investing at a much greater return? No, homeowners have no such "insider" program to benefit them.

When you work for a sole proprietor, whether an attorney or a corner grocery store owner, you are working for a Mom & Pop (or just Mom OR Pop) operation. I doubt whether the attorney you work for gets any similar unfair insider advantages & favors like Big Banks receive.

While there were some people who were not realistic about what they could afford in a mortgage, the banks are supposed to be the ones who evaluate the risk & not take on borrowers who were bad risks, or loan out too much over the equity in a property. But time & time again, the banks did it because they saw a way to make quick cash upfront on fees & commissions & then unload the loans on another bank, or even just on the FDIC insured branch of their own bank, thus potentially dumping it on the taxpayers. And some