A City Works to Save Homes By Invoking Eminent Domain

Scarcely touched by the nation’s housing recovery and tired of waiting for federal help, Richmond is about to become the first city in the nation to try eminent domain as a way to stop foreclosures.

The results will be closely watched by both Wall Street banks, which have vigorously opposed the use of eminent domain to buy mortgages and reduce homeowner debt, and a host of cities across the country that are considering emulating Richmond.

The banks have warned that such a move will bring down a hail of lawsuits and all but halt mortgage lending in any city with the temerity to try it.

But local officials, frustrated at the lack of large-scale relief from the Obama administration, relatively free of the influence that Wall Street wields in Washington, and faced with fraying neighborhoods and a depleted middle class, are beginning to shrug off those threats.

“We’re not willing to back down on this,” said Gayle McLaughlin, the former schoolteacher who is serving her second term as Richmond’s mayor. “They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.”

Despite rising home prices in many parts of the country, including California, roughly half of all homeowners with mortgages in Richmond are underwater, meaning they owe more — in some cases three or four times as much more — than their home is currently worth. On Monday, the city sent a round of letters to the owners and servicers of the loans, offering to buy 626 underwater loans. In some cases, the homeowner is already behind on the payments. Others are considered to be at risk of default, mainly because home values have fallen so much that the homeowner has little incentive to keep paying.

Many cities, particularly those where minority residents were steered into predatory loans, face a situation similar to that in Richmond, which is largely black and Hispanic. About two dozen other local and state governments, including Newark, Seattle and a handful of cities in California, are looking at the eminent domain strategy, according to a count by Robert Hockett, a Cornell University law professor and one of the plan’s chief proponents. Irvington, N.J., passed a resolution supporting its use in July. North Las Vegas will consider an eminent domain proposal in August.

But the cities face an uphill battle. Some have already backed off, and those who proceed will be challenged in court. After San Bernardino County dropped the idea earlier this year, a network of housing groups and unions began working to win community support and develop nonprofit alternatives to Mortgage Resolution Partners, the firm that is managing the Richmond program.

“Our local electeds can’t do this alone, they need the backup support from their constituents,” said Amy Schur, a campaign director for the national Home Defenders League. “That’s what’s been the game changer in this effort.”

Richmond is offering to buy both current and delinquent loans. To defend against the charge that irresponsible homeowners who used their homes as A.T.M.’s are being helped at the expense of investors, the first pool of 626 loans does not include any homes with large second mortgages, said Steven M. Gluckstern, the chairman of Mortgage Resolution Partners.

The city is offering to buy the loans at what it considers the fair market value. In a hypothetical example, a home mortgaged for $400,000 is now worth $200,000. The city plans to buy the loan for $160,000, or about 80 percent of the value of the home, a discount that factors in the risk of default.

Then, the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program. The $30,000 difference goes to the city, the investors who put up the money to buy the loan, closing costs and M.R.P. The homeowner would go from owing twice what the home is worth to having $10,000 in equity.

Alan Blinder contributed reporting.

Today's Economist: Growth From the Middle Out, and How It Works

Germany Works to Curb European Youth Unemployment

Wolfgang Schäuble, the German finance minister, and Vítor Gaspar, his counterpart in Portugal, announced a plan on Wednesday to use the German state development bank to help set up a financial institution to assist Portuguese under age 25 in getting jobs or job training.

This week, Ursula von der Leyen, the German labor minister, signed an agreement with her Spanish counterpart, Fátima Báñez García, that foresees bringing thousands of young Spaniards to Germany for apprenticeships. At the same time, Germany will seek to help Spain build a dual-track vocational system in which young people earn qualifications through a combination of work and study.

The initiatives are part of a multipronged effort by Berlin to quickly get more young people into the work force, a move that experts say is crucial if a unified Europe is to survive into the next generation. “What is decisive is that we must be faster and more definitive in fighting youth unemployment,” Mr. Schäuble said.

More than 5.6 million people under 25 are without work across the union, according to figures released by Eurostat, the statistical office of the European Union. Among the countries with the largest number of young people out of work are the weaker members of the euro zone that are undergoing deep cuts to social services and other structural changes, part of efforts to recover from the debt crisis.

Germany grappled with its own youth unemployment problem early last decade. While its numbers then were nowhere near the 60 percent of young people now out of work in Greece, or the nearly 56 percent in Spain, German leaders said their experience could be of value to their European partners.

Next week, German and French officials plan to draw up a bilateral agreement on employment when they meet alongside European business leaders at a conference in Paris. On July 3, Chancellor Angela Merkel of Germany will gather labor ministers and the heads of 27 European Union labor agencies in Berlin for a meeting to further discuss the problem.

Details of the German-French proposal remain vague, but Mr. Schäuble insisted that financing would not be an issue.

He cited the 6 billion euros, or $7.8 billion, that the European Union has earmarked in its new budget for addressing the problem, as well as additional money that was given to the European Investment Bank in Luxembourg intended for loans to small and midsize businesses, which would help create more jobs.

“We are working to use the existing funds more efficiently,” Mr. Schäuble said in Berlin.

Unemployment in the early stages of a person’s career damages the ability to integrate into society, or, in the case of the union, to later support the idea of more integration on the Continent, said Joachim Möller, director of the Institute for Employment Research in Nuremberg. “The long-term effects reach far beyond the working world,” he added. “It could be catastrophic for their idea of Europe.”

Advertising: Green Works Aims to Get Out of the Niche

The brand — introduced in 2008 with a controversial endorsement by the Sierra Club — has carried prices at least 20 percent higher than traditional housecleaning products and has been promoted with retailers’ natural and organic products.

In January, however, Green Works recommended that retailers eliminate its price premium and promote its products with traditional housecleaning products. The new policies will be phased in starting this summer.

Clorox’s contract with the Sierra Club, which involved a $1.3 million payment to the environmental organization, will expire this December; the Sierra Club logo, which has appeared on all Green Works packaging, will be eliminated from new, bolder packaging that will begin appearing this summer as part of the overhauled marketing strategy.

The new strategy — which Green Works’ brand manager, Shekinah Eliassen, said was meant to promote its products as being “affordable, effective, accessible and approachable” — no doubt stems from a precipitous decline in sales.

An August 2012 report on environmentally friendly cleaning products in the United States by Packaged Facts, a market research company, said that although Green Works’ dollar sales jumped more than 50 percent in 2009 to $53 million, they had fallen to $32 million for the year ending May 13, 2012, based on data from the IRI Group.

Similarly, Packaged Facts estimated that although Green Works generated about 20 percent of all dollar sales in the green household cleaner category in 2009, that figure had fallen to 13 percent in May last year, according to IRI Group data.

“When Green Works was first launched, it came out of the gate with a lot of investment by Clorox,” said Jason Gere, an analyst at RBC Capital Markets. “Initially it started to do well, but then the macroeconomic environment took over. Clorox realized that in this consumer-led recession, having products even as environmentally friendly as Green Works’ are, but charging a 20 percent-plus premium to conventional cleaners, was not working.”

The line’s association with Clorox also may have been detrimental, said Ali Dibadj, a senior analyst at Sanford Bernstein. He said the connection meant Green Works “did not appeal to the classic green consumer. So they’re deciding to go after conventional consumers at a lower price point.”

Mr. Gere, who estimated that Green Works likely generates about 5 percent of Clorox’s total sales, said the company had “done themselves a favor by adjusting the price gaps, and with Green Works sold in the cleaning section with traditional products, consumers probably will be willing to try it to see if they like it.”

According to Kantar Media, Clorox spent more than $25 million a year on advertising by DDB, part of the Omnicom Group, for Green Works in 2008 and 2009, the vast majority on television and magazine advertising. Kantar Media said that figure dropped to almost $600,000 — spent mostly on Internet advertising — in 2011, a figure that doubled to $1.2 million last year.

Rebecca Boston, Green Works’ public relations and digital strategist, said the brand decided last year to aim its marketing at “digitally savvy” mothers, ages 18 to 49, “who spend a lot of time online. That’s where we needed to reach them.”

To that end, Green Works hired Calgary, Alberta-based Critical Mass, a digital agency controlled by the Omnicom Group, to develop an advertising strategy driven primarily by social media; officials said Clorox would spend $10 million on the campaign through mid-2014.

Green Works is celebrating Earth Day on Monday with a program that will let Twitter users post a joke to Green Works’ Twitter account. For every Twitter post through the end of May, Green Works will donate a dollar, up to $20,000, to the Environmental Media Association’s school gardens project. The tagline of the initiative is, “You don’t have to be serious to be green.”

In January, Green Works introduced a YouTube series called “Green Housewives,” which parodies people who have made being environmentally correct a status symbol. In February, Green Works ran a “Tweethearts” campaign that allowed participants to send environmentally friendly, virtual Valentine’s Day cards via Twitter. The March social media initiative was a six-second game of charades on Vine, a video clip app, for St. Patrick’s Day; its message was, “You don’t have to put on a charade to be green.”

Chris Gokiert, president of Critical Mass, said the social media initiatives — which are being promoted with digital banner advertising — are intended to “help customers become owners of and advocates for the brand.”

The campaign also involves a new Green Works Web site, introduced in January, and magazine advertising in April, May and June issues of women’s magazines and People. One ad says, “You don’t have to be perfect to be green,” while another says, “You don’t have to be a trust fund baby to be green.”

Kevin Tuerff, president of EnviroMedia, an Austin-based environmental marketing company, said the new social media strategy could “enhance brand awareness, though it may not translate into sales.”

Wendy Nicholson, who follows Clorox for Citi, said organic personal care products generally have been more successful than organic household products. “People tend to care more about all-natural, organic products going into the body, as opposed to being used on their dishes or clothes,” she said.