SAN FRANCISCO (AP) — The mayor of a financially struggling Northern California city and several supporters showed up unannounced Thursday at Wells Fargo Bank's downtown headquarters to demand it drop a lawsuit fighting a novel plan to refinance hundreds of "underwater" mortgages.
Bank officials blocked Richmond Mayor Gayle McLaughlin and several supporters from entering the building in downtown San Francisco shortly after noon. Instead, a security guard told McLaughlin a bank official would call her later and schedule an appointment.
McLaughlin wants Wells Fargo & Co. and Deutsche Bank AG to drop their lawsuit filed last week against the city and its financial backer.
Richmond is seeking to use the power of eminent domain to force lenders to refinance loans on homes that are worth less than the mortgage at "market value," reducing the amount owed.
The idea is that city officials, backed by Mortgage Resolution Partners, offer to buy from banks loans that are worth more than property for their current value. The city would then "resell" the new mortgage to the homeowner, reducing monthly payments.
If banks refuse to sell the underwater loans, Richmond says it can seize the property under eminent domain. Eminent domain allows municipalities to seized private property for the needs of government as long as the property owner is reimbursed. Richmond plans to "seize" underwater loans from banks, reimburse them at market value, and then resell the cheaper loans to the original homeowner at current mortgage rates.
Wells Fargo and Deutsche Bank filed a lawsuit this week, alleging the city's program could cost investors $200 million or more. The lawsuit seeks an immediate court order to stop Richmond and Mortgage Resolution Partners from carrying out the plan.