The city of Richmond, California, is faced with a mountain of homes where the owners are seriously underwater in their mortgages. The banks and investors who hold the mortgages have refused to adjust the terms of the loans in any meaningful way, and Richmond is worried that a wave of either foreclosures or walkaways will result in Richmond becoming Detroit West. Their solution: they want to buy the loans and then rework the terms for the owners to something more realistic. The banks, as you might guess, don’t want to sell.
Richmond is threatening to invoke eminent domain, to force the sale, and the banks are filing suits to block this. But the banks ought to be careful about what they are wishing for. Why? I’ll give you the answer in a single word . . .