Seattle housing officials estimate about one-fifth of the city s homeowners are underwater on their mortgages.

On Wednesday, Seattle City Council members voted to explore options to help homeowners facing foreclosure, but one of those options comes with a bit of controversy.

According to city council, these homeowners roughly owe between $65,000 and $130,000 more on their mortgages than their homes are worth.

One of those homeowners said she missed her first mortgage payment this month and she s terrified.

People don t deserve this. We didn t do anything wrong. In fact, we did everything right. And yet, we re here, said Joelle Craft.

Craft is a 35-year-old mother of two. She has multiple sclerosis and says she can t work anymore. Her partner, an electrician, lost his job for a while due to the economic downturn. Their house is now worth $30,000 less than they bought it for and they re now facing the possibility of foreclosure. They re exactly the kind of homeowners city council is targeting.

They are able to pay a mortgage, just not at their original value. City council voted to explore ways to reduce payments for homeowners like them. One of those options is imminent domain. The city would seize the mortgage from the bank and allow the homeowner to pay the city back at a reduced rate. Some say this type of principal reduction is the only way to go; others say it would create further financial instability because lenders would shy away from any city seizes mortgages.

It will further depress home values, pushing more homeowners underwater and further increase the down payment requirements and mortgage rates to compensate for the additional risk and loss, said Washington State Mortgage Lenders Association Director Jeff Jensen.

That s incorrect. What created that instability is actually foreclosures. That s the problem and we need to make sure we identify that straight on. We ve got to address how to stop foreclosures, said Dr. Sheley Secrest , Economic Development Chair of Seattle/King County NAACP.

Richmond, California, is currently involved in litigation over this very use of imminent domain - and city officials in Seattle say it's possible they'd face that too. They're also not sure who would pay to acquire these homes: a private/public partnership or the general tax fund. The next step is a report due in March of next year.

City lending officials must come up with a list of viable options to help homeowners, including imminent domain, and present what the financial and political ramifications will be.

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