In a move that’s pitting grassroots housing activists against Wall Street interests, the City Council of Brockton, Mass., decided this week to commission a study into the feasibility of using eminent domain powers to seize the mortgages of local residents struggling to pay off their loans.
The plan being studied would essentially use municipal government’s prerogative of eminent domain to take possession of foreclosed residential mortgage notes, selling them back to residents, as the City Council resolution put it, “for the purpose of removing blight and restoring family home-ownership within the city.”
The city would also focus on seizing the mortgages of “underwater” homeowners, those who owe more on their homes than their current appraised worth and would greatly benefit from a new loan that resets the value of their property.
Such a framework would amount to “using government power to do social good,” Steve Meacham, an organizer with non-profit advocacy group City Life/Vida Urbana said, adding that such “social good is something the banks should have been doing in the first place anyway.”
Brockton's move is the latest revival of an idea that has been unevenly embraced by some of the communities worst hit by the collapse of the housing bubble in 2007. Fittingly enough, using eminent domain did not have its genesis with the community organizers now pushing it forward in places like Brockton, San Bernardino, Calif., or Detroit, but in high finance, where a firm called Mortgage Resolution Partners -- which hopes to make a tidy profit providing financing for the schema -- first suggested the plan.
The idea, that company says, is “to stabilize local housing markets and economies” by engaging in de-facto re-financings that offer more generous terms to financially strapped homeowners.
Not everyone, of course, believes that’s such a great plan. Among the various finance industry groups that sent letters to the Brockton City Council opposing the consideration of eminent domain, the American Securitization Forum said the idea is half-baked, unhelpful and likely unconstitutional.
“The proposal, as a policy matter, would be short-sighted and ultimately counterproductive for the residents of municipalities where it may be considered, including Brockton,” the association said in a letter to the City Council last month.
The group also noted the adoption of an eminent domain framework and the prolonged legal issues such a development would involve could cause a complete shutdown in the availability of mortgage credit within the city of Brockton, or even the state of Massachussets.
“MRP’s plan threatens to restrict the availability of mortgage loans to all potential homeowners in jurisdictions that have implemented an eminent domain program,” the letter from the industry group states.
Facing such criticism, even the council member presenting the resolution to study the plan, Jass Stewart, told the body, “This is a solution that should be studied vigorously, but I myself am not sure this is the right direction to go.”
That hesitation is not discouraging the housing activists on the ground, who say they are having productive meetings with local financiers about the possibility of implementing the idea.
“There’s a tradition in New England of some robust municipal activism,” Meacham, the community organizer, said. He added that the threat by major banks to nuke the local mortgage market if the city moves forward with the plan should be no cause for concern. “If the major banks did pull out and all the refinancing went to the small banks, that would not be a bad thing," he said.
In a sense, the latest move by the Brockton City Council is not a new or major offensive in the long struggle between financiers and activists, but rather another strike in the low-intensity guerrilla effort being waged throughout the country.
Meacham explained proposing eminent domain as an alternative in Brockton is necessary after “solutions at the state and national level have proven woefully inadequate."
“We’re not doing that just because we just don’t like the banks," he said. "We’re doing it so that they’ll do what they should have done a long time ago."