Wall Street has so far crushed a drastic foreclosure fix. One California town could change that.

Lydia DePillis
Washington Post

The fate of the housing market, and the banks that profit from it, could come down to a single city council meeting in Richmond, Calif.

Tonight, the foreclosure-stricken town will decide whether the city will forcibly take underwater mortgages away from the investors that own them to keep people in their homes.

Here's the idea: While banks have been slowly writing down the principal on the nation's 10 million remaining underwater mortgages to reduce their risk of default, a large basket of them have proved tougher to solve. According to Cornell Law Prof. Robert Hockett, 45 percent of those mortgages are locked up in private label securities, which are structurally much more difficult to reduce.

But hey! Cities have the power to simply take over mortgages themselves, through the power of eminent domain — it's a form of property, just like a house or a piece of prairie. So why not seize them, write down the principal to its fair market value, and keep families in their homes?

The problem is, cities with lots of foreclosures don't have that kind of cash to burn, so they need new investors to buy the loans. That's where Mortgage Resolution Partners comes in.

Mortgage Resolution Partners is the project of Steven Gluckstern, a former asset manager and insurance executive who now owns a medical device company, and John Vlahoplus, a Rhodes Scholar who ran Bank of America's residential lending division the 1980s before going to work for BNP Paribas. They brought on investors to underwrite operations, lined up big funds on Wall Street to pay for the new loans, and started shopping their program around to hard-hit cities in California and Nevada. San Bernardino, Calif.; North Las Vegas, and Wayne County, Mich., all seriously considered the idea, with dozens of smaller cities taking a look at it as well.

Read more here.