Richmond homeowners underwater on their mortgages are about to get a bailout -- not from President Obama and not from banks.
From their own city, which is planning to buy underwater homes and sell them back to owners who will then have equity, according to reports.
While other cities are examining the strategy, Richmond is believed to be the first city in the nation to say that it will take over underwater homes -- homes where the owners owe more on their mortgages than the homes are worth -- via the tool of eminent domain, according to the New York Times.
Nearly half of all homeowners in Richmond are underwater on their mortgages, and the city is taking the controversial step of taking over the mortgages -- with help from investors -- despite threats of lawsuits and an end to lending from banks.
The offer would not be extended to homeowners who used their residences as "ATMs" to take out large amounts of cash.
The city, with an investment partner, would first offer to buy the homes outright from the loan servicers and private investors who own the mortgages via private label securities. But if they refused, the city can seize the properties via an eminent domain lawsuit which would offer the mortgage owners "fair market value."
Some members of Congress have introduced laws that would prohibit Fannie Mae and Freddie Mac from issuing new mortgages in cities who use the program.