Eminent Domain Resource Center



Overview

Recently, certain municipalities have explored the use of eminent domain to seize mortgage loans from their holders and refinance them with reduced principal balances through government programs.

Under several of the proposed plans, a city or county would condemn and seize certain mortgages held in private-label securitizations under the power of eminent domain and refinance the seized mortgage through a government lending program. The idea has reportedly been considered in several cities; it was considered and rejected in San Bernardino County. 

On August 8, 2012, the Federal Housing Finance Agency (FHFA) published a notice explaining its concerns with a particular proposal from Mortgage Resolution Partners (MRP) and indicated that “action may be necessary to avoid a risk to the safe and sound operations of its regulated entities.” Congress has also expressed concern about the proposal, resulting in legislation from Rep. John Campbell (R-Calif.) that would prohibit Fannie Mae and Freddie Mac from purchasing, the Federal Housing Administration from insuring and the Department of Veterans Affairs from making, insuring or guaranteeing, a home mortgage loan that is secured by a residence located in a state or local authority has used the power of eminent domain to take a home mortgage.

 

Position

SIFMA recognizes the significant difficulties municipalities face in their housing market and economy, but strongly object to any proposed use of eminent domain to take mortgage loans out of securitized pools. Eminent domain stands to hurt the very borrowers it seeks to help; there are better alternatives to address these problems.

SIFMA believes that the contemplated use of eminent domain raises very serious legal and constitutional issues, including a violation of the Contract Clause and an impermissible “taking” of private property under the U.S. Constitution and various State Constitutions. Additionally, SIFMA believes the plan would be immensely destructive to U.S. mortgage markets by undermining existing securitization transactions, which would significantly reduce access to credit for mortgage borrowers in affected areas.