The mortgages then would be reduced and homeowners refinanced into new debt insured by the Federal Housing Administration.
Richmond’s plan would harm interstate commerce because lenders will be less willing to underwrite mortgages and investor confidence in the market for mortgage-backed securities and “by extension, the national housing market and national economy” would be undermined, according to yesterday’s complaint.
The plan is also discriminatory because it targets only certain loans, the trustees alleged. It violates California and U.S. constitutional protections against impairing private contracts and the taking of private property for public use without just compensation, according to the complaint.
Richmond Mayor Gayle McLaughlin declined to comment on specifics of the lawsuit because she hadn’t seen it yet.
‘Another Stage’
“I continue to stand by this program and the benefits to our residents,” she said in a telephone interview. “We feel comfortable with the legality of this.”
Hockett, the Cornell professor, said the lawsuit makes the same arguments he has previously called unsound.
“It’s essentially another stage in their strategy to scare cities,” Hockett said in a telephone interview. “The industry is essentially trying to head them off at the pass.”
Mortgage Resolution Partners, which is based in San Francisco, has reviewed the lawsuit and is confident it can prevail in court, Chairman Gluckstern said in an e-mail.
“No investor in any trust will be made worse off by the sale of any loan. Rather, it is these trustees that are wasting trust assets at the expense of America’s pensioners by pursuing fruitless litigation,” Gluckstern said. “Sadly, the financial institutions that brought us this crisis are yet again part of the problem rather than part of the solution.”