The regulator of Fannie Mae and Freddie Mac is considering directing the companies to stop doing business in municipalities that seize mortgages through eminent domain, the agency’s general counsel said today in a memorandum.
The Federal Housing Finance Agency may also initiate legal challenges to eminent domain actions, Alfred M. Pollard, the general counsel, said in the memorandum, which was posted on the agency’s website.
“There is a rational basis to conclude that the use of eminent domain by localities to restructure loans for borrowers that are ‘underwater’ on their mortgages presents a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks as provided in federal law,” Pollard wrote.
The city of Richmond, California, announced last month it is moving ahead with a plan to seize mortgages from investors and write down the loan balances to help borrowers at risk of foreclosure.
At least a dozen cities still dealing with the fallout of the worst slump in home prices since the Great Depression are studying the eminent domain idea. Others include El Monte, California, North Las Vegas, Nevada, and Irvington, New Jersey. Communities such as San Bernardino County, California, and Chicago abandoned such plans after considering them last year.
The FHFA statement comes a year after the agency first requested public input on the issue, and a day after Fannie Mae and Freddie Mac joined investors authorizing a lawsuit to stop Richmond from seizing loans.
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