The Federal Housing Finance Agency (FHFA) said yesterday that it may take action to prevent the proposed use of eminent domain by municipalities to seize and restructure underwater mortgages, citing potential risks to taxpayer-supported firms Fannie Mae and Freddie Mac, the Wall Street Journal reported today. The concern expressed by the FHFA comes as a trio of municipalities in California, Chicago and other communities have said that they are considering a plan that would allow them to purchase underwater loans from mortgage bond trusts at a discount, then refinance them at current market value. But the proposal, pitched to municipalities by private consulting group Mortgage Resolution Partners, has alarmed banking and other trade groups that warn stripping loans from investors would create unnecessary losses and reduce the availability of credit. Already, the Securities Industry and Financial Markets Association has proposed prohibiting loans originated in areas using eminent domain from a key part of the $5 trillion mortgage-backed securities market that is a backbone for U.S. housing finance.
To learn more about legal issues surrounding the eminent domain issue being considered by municipalities, make sure to listen to ABI's latest podcast:
http://news.abi.org/podcasts/118-examining-california-countys-controver…