(Corrects headline, and 1st and 2nd paragraphs to show thatCalpers is concerned over the plan, not that it says it isopposed to it)
By Jim Christie
SAN FRANCISCO, Sept 30 (Reuters) - As Richmond, California,moves forward with a plan to help struggling homeowners by usingits power of eminent domain to seize underwater mortgages, thelist of those concerned about it is growing - and now includesthe pension fund for many of the very same city workers pushingthe plan.
The $268 billion California Public Employees' RetirementSystem, the nation's largest public pension fund, joins banksand other investors in worrying that Richmond's plan willundermine the value of its holdings.
Calpers holds about $11 billion in income-producingmortgage-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 ourfocus must be in the best interests of our members," Calpersspokesman Joe DeAnda told Reuters in the fund's first publicstatement on Richmond's plan. "We are watching the issue closelyand have some concerns about the precedent this may set and theimpact to investors."
Meanwhile, the Service Employees International Union, which represents 452 of Richmond's roughly 900 employees, most of whomare members of Calpers, is a full-throated backer of thefirst-of-its-kind eminent domain plan.
SEIU President Mary Kay Henry said in a statement that theplan is an overdue measure to prevent more foreclosures: "Tiredof waiting on the banks and regulators, community groups andlabor unions, including SEIU members, are taking action to findsolutions locally."
The opposing stance of two organizations charged withprotecting the financial interests of the same group ofemployees shows some of the complexities that have made itdifficult to remedy ongoing problems created by the 2007 housingbust.
The SEIU considers the fears of institutional investors overthe possible impact to their holds such as Calpers to beunfounded scare tactics. It is more concerned with helpingfamilies 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 theSan Francisco Bay that are populated by the Silicon Valleyelite.
Under the plan, Richmond would buy up underwater mortgagesfor 80 percent of the homes' current appraised value. The plancontemplates writing down the debt and letting homeownersrefinance.
Supporters say the plan would help avert foreclosures andmake mortgages more affordable in a city plagued by a highpercentage of underwater loans -- a situation in which thebalance owed on a mortgage exceeds the value of the propertyitself. Fully half of Richmond's mortgage borrowers areunderwater.
"If the program succeeds it will help homeowners getprincipal reduction, which will help people stay in their homesand some day own their homes," said Doris Ducre, a 60-year-oldlab technician. She said her four-bedroom home in Richmond waslast 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 activeemployees of Calpers, sympathizes with borrowers like Ducre, buthe sees the plan as a risk for any investor in mortgage-backedsecurties. He intends to press that point at the next meeting ofCalpers' investment committee.
"This may have far-reaching effects," he said. "It's notjust in Richmond that people find themselves under water withtheir mortgages."
Richmond could use eminent domain, a power typically used toseize property for public purposes such as building roads, toacquire mortgages if the investors holding the mortgages turndown offers to buy homes at deep discount to the value of theloans.
Richmond has already made offers for 624 delinquent andperforming mortgages, spurring critics to say it is lending itseminent domain power to Mortgage Resolution Partners, theinvestor group that pitched the plan to Richmond and could splitprofits from refinancings with the city.
The financial debate swirling around the plan doesn't matterto Millie Cleveland, an SEIU field representative for Richmondwho shares Mayor Gayle McLaughlin's view of the plan. "Now wehave the political will to take on the banks," she said.
Banks -- Wells Fargo & Co, Deutsche Bank AG, Bank of NewYork Mellon -- are contesting Richmond's plan, but as trusteesfor others with stakes in mortgages in the city. And likeCalpers, those bondholders -- which include BlackRock Inc,DoubleLine Capital LP, Pacific Investment Management Co, FannieMae and Freddie Mac - are concerned Richmond may prove aprecedent.
"The fear is that it'll open a floodgate," said VinceFiorillo, president of the board the Association of MortgageInvestors and global sales director at DoubleLine Capital.
Richmond's city council voted 4-3 to advance the planearlier this month, but it would need a fifth vote to actuallybegin seizing mortgages, and it's not clear when such a votemight take place.
Wells and Deutsche Bank sued in federal court in SanFrancisco to halt the plan, but the suit was dismissed aspremature. Bank of New York Mellon is pressing a separate suitagainst Richmond. (Reporting by Jim Christie; Editing by Leslie Adler)
- eminent domain