By Wayne Smith and Udi Ofer
When the housing bubble burst in 2008, it sank the fortunes of millions of Americans who decided to invest their money by purchasing a home when the real estate market was hot. An estimated 1,775 homes in Irvington have been foreclosed on since the housing bubble burst in 2008, causing the Township of Irvington to spend precious revenue on maintaining and policing vacant and abandoned properties.
According to a report by NJ Communities United titled, “Irvington Homewrecker,” homeowners lost nearly $300 million in wealth tied to their properties. It’s not surprising that Irvington has been hard hit by the foreclosure crisis. Communities of color across the country, like Irvington, were targeted by unscrupulous banks peddling sub-prime mortgages. The number of foreclosures in communities of color is 17 per 1,000 households, while predominantly white communities have seen 10 foreclosures per 1,000 households.
So how should Irvington and other towns respond to this crisis and protect residents from further community destabilization brought on by the toxic mortgages? Our answer: Eminent domain. This should rightfully raise some red flags for people. Historically, the government has used its right of eminent domain to seize property from private citizens and hand it over to wealthy developers who built massive malls, office towers and luxury condos. But Irvington has the opportunity and the legal authority to use eminent domain as a tool to restore wealth to Irvington homeowners and taxpayers while letting them keep their homes. This novel approach has already been set in motion in Richmond, California, which was also hard hit by the mortgage crisis.
So how would it work?
The township would use eminent domain to condemn and seize the mortgages – not the homes – of homeowners who owe more than their homes are worth and who meet a few other criteria. Using money from private investors, the township would pay the holders of those mortgages fair market value and renegotiate a new mortgage based on much lower principal amounts, reflecting the new depressed values of the homes. The process will require and encourage public hearings and community involvement in crafting a contract with an investment firm to manage the process. That contract will also require strict community oversight as the process plays out. The investment firm would assume any costs that could arise from lawsuits filed by Wall Street lobbyists and banks. Homeowners, meanwhile, will be able to keep their homes, stemming the growing plague of abandoned communities that has spread because of the mortgage crisis.
This approach won’t help every distressed homeowner, but it will address the foreclosure crisis on a larger scale than what can be done by housing counseling and individual mortgage modifications. This approach will target a very specific set of loans called “Private Label Securities” or “PLS” loans. In Irvington there are an estimated 900 to 1,100 PLS mortgages. These highly toxic loans represent only 10 percent of all mortgages, but they are at the center of the foreclosure crisis, particularly in communities of color who were targeted by Wall Street in the lead up to the housing bubble.
This plan will alleviate the costs to maintain the vacant and abandoned homes resulting from foreclosures, as well as the problems created by destabilized communities, like crime and vandalism, which lead to community blight. Neither federal nor state efforts have been sufficient in ending the trauma caused in working class communities by Wall Street’s reckless behavior and rampant fraud.
At the end of the day, it was Wall Street who threw communities into crisis by peddling toxic mortgages in working class communities of color like Irvington. So it is up to us – the community – to hold Wall Street accountable for the mess they made and to dig ourselves out of the crisis they created.
Wayne Smith is the Mayor of Irvington Township. Udi Ofer is the executive director of the ACLU of New Jersey.
Photo courtesy of Mario C. Russell.