(Corrects headline, and 1st and 2nd paragraphs to show that
Calpers is concerned over the plan, not that it says it is
opposed to it)
By Jim Christie
SAN FRANCISCO, Sept 30 As Richmond, California,
moves forward with a plan to help struggling homeowners by using
its power of eminent domain to seize underwater mortgages, the
list of those concerned about it is growing - and now includes
the pension fund for many of the very same city workers pushing
The $268 billion California Public Employees' Retirement
System, the nation's largest public pension fund, joins banks
and other investors in worrying that Richmond's plan will
undermine the value of its holdings.
Calpers holds about $11 billion in income-producing
mortgage-backed securities, though it calculates it has just
$27,000 in exposure to mortgages targeted by Richmond.
"We are sympathetic to homeowners but as fiduciaries our
focus must be in the best interests of our members," Calpers
spokesman Joe DeAnda told Reuters in the fund's first public
statement on Richmond's plan. "We are watching the issue closely
and have some concerns about the precedent this may set and the
impact to investors."
Meanwhile, the Service Employees International Union, which
represents 452 of Richmond's roughly 900 employees, most of whom
are members of Calpers, is a full-throated backer of the
first-of-its-kind eminent domain plan.
SEIU President Mary Kay Henry said in a statement that the
plan is an overdue measure to prevent more foreclosures: "Tired
of waiting on the banks and regulators, community groups and
labor unions, including SEIU members, are taking action to find
The opposing stance of two organizations charged with
protecting the financial interests of the same group of
employees shows some of the complexities that have made it
difficult to remedy ongoing problems created by the 2007 housing
The SEIU considers the fears of institutional investors over
the possible impact to their holds such as Calpers to be
unfounded scare tactics. It is more concerned with helping
families struggling with their mortgage payments.
Located east of San Francisco and home to an oil refinery,
Richmond is a world away from the towns on the other side of the
San Francisco Bay that are populated by the Silicon Valley
Under the plan, Richmond would buy up underwater mortgages
for 80 percent of the homes' current appraised value. The plan
contemplates writing down the debt and letting homeowners
Supporters say the plan would help avert foreclosures and
make mortgages more affordable in a city plagued by a high
percentage of underwater loans -- a situation in which the
balance owed on a mortgage exceeds the value of the property
itself. Fully half of Richmond's mortgage borrowers are
"If the program succeeds it will help homeowners get
principal reduction, which will help people stay in their homes
and some day own their homes," said Doris Ducre, a 60-year-old
lab technician. She said her four-bedroom home in Richmond was
last appraised at less than $200,000, well below the roughly
$400,000 she owes on it.
George Linn, spokesman for the Retired Public Employees'
Association of California, a group of retirees and active
employees of Calpers, sympathizes with borrowers like Ducre, but
he sees the plan as a risk for any investor in mortgage-backed
securties. He intends to press that point at the next meeting of
Calpers' investment committee.
"This may have far-reaching effects," he said. "It's not
just in Richmond that people find themselves under water with
Richmond could use eminent domain, a power typically used to
seize property for public purposes such as building roads, to
acquire mortgages if the investors holding the mortgages turn
down offers to buy homes at deep discount to the value of the
Richmond has already made offers for 624 delinquent and
performing mortgages, spurring critics to say it is lending its
eminent domain power to Mortgage Resolution Partners, the
investor group that pitched the plan to Richmond and could split
profits from refinancings with the city.
The financial debate swirling around the plan doesn't matter
to Millie Cleveland, an SEIU field representative for Richmond
who shares Mayor Gayle McLaughlin's view of the plan. "Now we
have the political will to take on the banks," she said.
Banks -- Wells Fargo & Co, Deutsche Bank AG, Bank of New
York Mellon -- are contesting Richmond's plan, but as trustees
for others with stakes in mortgages in the city. And like
Calpers, those bondholders -- which include BlackRock Inc,
DoubleLine Capital LP, Pacific Investment Management Co, Fannie
Mae and Freddie Mac - are concerned Richmond may prove a
"The fear is that it'll open a floodgate," said Vince
Fiorillo, president of the board the Association of Mortgage
Investors and global sales director at DoubleLine Capital.
Richmond's city council voted 4-3 to advance the plan
earlier this month, but it would need a fifth vote to actually
begin seizing mortgages, and it's not clear when such a vote
might take place.
Wells and Deutsche Bank sued in federal court in San
Francisco to halt the plan, but the suit was dismissed as
premature. Bank of New York Mellon is pressing a separate suit
(Reporting by Jim Christie; Editing by Leslie Adler)