This past week, the Richmond CA city council voted 4-3 to move ahead with the Richmond CARES program, in which the city will buy underwater mortgages from lenders then reduce the amount owed by the homeowner to less than the assessed value of the home. More than half of all mortgaged homes in the city are underwater, and the city is starting by purchasing particularly toxic “private label security” loans which were sold by banks to pools of private investors, who now claim that they are unable to modify them. 

The Richmond plan also allows the city to buy houses by eminent domain, although banks have threatened that such a move would make them less likely to lend to the city in the future, and a court was set to rule on Thursday as to whether the use of eminent domain in such a case is constitutional, but the city of Richmond has asked the judge to dismiss the case as neither plaintiffs Wells Fargo or Deutsche Bank have shown any evidence of harm from the loan buyback program. Both banks, meanwhile, have been targeted in court and by activists for code violations or illegal eviction practices.

If the Richmond plan survives court challenges and succeeds in preventing foreclosure, perhaps some Massachusetts towns and cities will take a first or second look at similar initiatives here. A state or city bank could be an excellent source of funding for these kinds of programs. In turn, neighborhoods with housing-secure resident homeowners mean a stronger tax base and higher property values. Democratizing our banking system is a win-win for everyone but predacious lenders.