RICHMOND -- As they continue to mull over the possibility of using eminent domain to seize underwater mortgages, city leaders concede that uncertainty surrounding the unprecedented plan has cooled demand for Richmond's bonds and will cost the city nearly $300,000 in premiums designed to draw back investors.

"Money is a little more expensive now," Finance Director James Goins told the City Council during Tuesday's meeting, adding that investors are "very conservative" and that the "headline noise" stemming from the eminent domain plan is the cause.

The loss in bond savings, revealed at the council meeting, represents the first tangible fiscal impact from Richmond's decision in July to consider becoming the first city in the country to use eminent domain to seize underwater mortgages. The city continues to develop a strategy with its investment partner, Mortgage Resolution Partners, to seize and refinance mortgages at current market value to stem foreclosures. Implementing the plan will require a supermajority of the City Council.

But flirting with the idea has drawn Wall Street's scorn, both in snubbing municipal bonds and triggering multiple lawsuits filed against the city on behalf of investors.

The City Council agreed Tuesday to hire the firm Stifel, Nicolaus & Co. to be the underwriter of new bonds that were spurned in August.

Assuaging investors' concerns about eminent domain is job one, said James Cervantes, managing director of Stifel, Nicolaus & Co.

"The real issue on the bonds is the story or the headlines around them, not the bonds themselves," Cervantes said.

According to City Manager Bill Lindsay, Richmond's successor to the now-defunct redevelopment agency is looking to refinance $34 million worth of bonds, and will market them with an interest premium to compensate for the "headline risk" linked to eminent domain.

The premium will cost the city's general fund $294,000, or about $30,000 per year, Lindsay said.

"The cost for the city to borrow is higher because of the mortgage principal reduction program," Lindsay said. "And the market has moved since August, so the cost for everyone to borrow is more now than it was then."

City leaders who have favored the eminent domain plan were quick to downplay the financial losses.

"$30,000 (per year) is a small amount compared to the savings we can get from this program" if it reduces foreclosures, said Mayor Gayle McLaughlin.

Councilman Tom Butt called it "not a loss; it is just less savings."

But critics disagreed, and pounced on each number they said demonstrated that the eminent domain plan was a costly failure. When the bonds were initially snubbed in August, they were expected to save nearly $4 million. Now, the savings to be had by refinancing is down to $1.2 million.

"(Taxpayers have) lost $2.7 million in potential savings," Councilman Nathaniel Bates said, citing staff report figures showing total losses both from not floating the bonds in August, when interest rates were lower, and paying a premium linked to eminent domain's risks.

Lindsay noted that the city bears only about 28 percent of the losses, with the rest being spread among other tax-collecting entities, including state, county, parks and water districts, as a result of the statewide dissolution of redevelopment agencies.

Bates countered that the city likely lost much more than $294,000 by not selling the bonds in August. "The damage has been done," Bates added.

Chuck Finnie, a campaign consultant who has been hired by the mortgage industry, said city leaders were "prevaricating" and "hiding the ball" in an effort to hide the real fiscal impact to the city.

"The mayor's attempt to score political points and thumb her nose at Wall Street is now costing Richmond real money," Finnie said.

Lindsay said that while Richmond's inability to sell its bonds has cost money, its credit rating is not at risk.

Prospects that Richmond will become the first city in the nation to use eminent domain to seize mortgages -- which has been touted as a tool to cut through bundled mortgages and force principal reductions -- have dimmed since summer.

Efforts to get other cities to join Richmond in a partnership that would spread the risk and costs of facing Wall Street's wrath have not yet worked.

Oakland's City Council recently abandoned plans to explore the strategy, citing the risks. Three Richmond council members, Bates, Corky Booze and Jim Rogers, have said they will not support the proposal because of the risk to the city, leaving the city at least one vote short of the supermajority required to move forward.

Contact Robert Rogers at 510-262-2726. Follow him at Twitter.com/SFBaynewsrogers.