Formula for Foreclosure Prevention Program Excludes Richmond’s most Desperate Residences

There are new developments in the city of Richmond, where officials have tried to assist those most in need of foreclosure prevention. Richmond’s radical principle reduction program proposes buying or seizing 624 underwater mortgages, possibly through eminent domain, an effort we have covered over the past few months.

The program is called Richmond Cares and it would significantly lower the principal owed on homes, so underwater owners could stay current on their payments. Nearly half of Richmond’s homeowners are underwater, meaning their house is worth less than their mortgage. Surprisingly the areas with the most foreclosures are not necessarily the neighborhoods being targeted for relief.

The list of homes has not been made public, but Richmond Confidential a local news website, has obtained a list showing 602 of the 624 mortgages that are targeted. The city does not have the ability to assist every struggling resident, leaving many to wonder if and how those excluded will benefit from the program.

Zillow has an underwater mortgage resource site you can visit for additional information.

To avoid another round of foreclosures the city wants to buy the underwater homes at fair-market value. If the banks decline to sell the mortgages, eminent domain will be used to seize the properties.

The selection of the 624 homes is complex but influenced by three factors. First, they had to be owner-occupied homes, not rental properties; second, the mortgages must be less than the assessed value of the home; and third, the mortgages had to be owned by private-label securities, which are the types of loans the city is targeting. A private-label security is a financial instrument that cannot be sold or modified making it almost impossible for homeowners to get a loan adjustment.

This resulted in more well-off neighborhoods receiving a lot of relief despite having fewer homes in foreclosure than some of Richmond’s harder hit low-income neighborhoods. Many homeowners in low-income neighborhoods may have large second liens or not be current on their payments, which would exclude them from the program.

So far, the only thing Richmond officials have done is send offer letters to loan servicers. It’s clear that the formula used for selecting mortgages excludes some of the city’s most desperate residences.

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