Use of Eminent Domain to Acquire Underwater Mortgages in North Las Vegas, NV

SIFMA and 20 other associations provide comments to the Mayor and City Council of North Las Vegas, Nevada opposing a proposal use of eminent domain to acquire underwater mortgages. The groups believe that the proposal raises very serious legal and constitutional  issues. They also note that such a novel use of the eminent domain powers is unprecedented and would, in their view, not survive the legal challenges that would ensue. 

In addition to the legal issues, the use of eminent domain will also be immensely destructive to U.S. mortgage markets in general and to specific communities using eminent domain, in particular. If the sanctity of the contractual relationship between a borrower and a creditor is undermined by eminent domain, both lenders and investors will be reluctant to provide future funding.

The groups also warn that more than a third of the approximately $1.3 trillion currently held in private-label securities (PLS) are held in pension plans, annuities and other insurance products, and mutual funds. Thus, the PLS losses are suffered not by large institutions but by every day savers and investors who have these investments in their pension and 401k plans, their college savings plans and their individual investment portfolios.