SEATTLE — A Cornell Law School professor hired by the Seattle City Council is recommending the city consider using eminent domain to help homeowners struggling with their mortgages.
Robert Hockett's report looks at ways to prevent and mitigate the effect of foreclosures in the wake of the housing bubble.
Usually, governments seize property for things like light rail projects.
This idea would have the city use eminent domain to take over mortgages, offer the bank fair market value and give homeowners new, lower payments.
The city council in Richmond, Calif. decided early Wednesday morning to be the first city to pursue eminent domain for mortgages.
The Mortgage Bankers Association says eminent domain for mortgages is likely unconstitutional. The Federal Housing Finance Agency threatens to limit lending in cities that use it.
Zillow Chief Economist Stan Humphries says homebuyers in a city that uses eminent domain could pay higher mortgage rates to compensate for the extra risk for banks. "The market is going to price that in, there's additional risk now for people who buy mortgage-backed securities in that market," he said.
Activists packed a Seattle City Council hearing on Wednesday to demand bold action to help struggling homeowners like Betsy Andrews. "I'm not quite in default yet. It could be any day, so I've been living for essentially four or five years with the threat of losing my home," Andrews said.
Seattle City Councilmember Nick Licata says it will be up to the full council and the mayor to decide whether to pursue the use of eminent domain. He says the city could also consider other options to help struggling homeowners.
Zillow says 17 percent of Seattle homeowners owe more than their properties are worth.
In all of King, Pierce and Snohomish counties, 28 percent are underwater.
Nationally, the number is just under 24 percent.
Fewer homeowners are now underwater in the Seattle area because home values are up 15 percent in the last year.