San Bernardino homeowners may be blacklisted from future Fannie Mae and Freddie Mac (collectively Frannie) guarantees.
The Federal Housing Finance Agency (FHFA) has released a statement cautioning counties such as San Bernardino that using eminent domain to seize underwater mortgages (also called reverse eminent domain) may be unconstitutional and have a lasting impact on county residents’ ability to borrow money to purchase their homes.
The FHFA has not yet specified what, if any, action it will take if these reverse eminent domain projects are implemented. The agency is soliciting comments from the public via email: eminentdomainOGC@fhfa.gov. The last day for comments is September 7, 2012.
Mortgages guaranteed by Frannie are excluded from eminent domain plans proposed thus far. However, Frannie holds over $100 billion worth of privately issued mortgage-backed bond (MBB) securities on its portfolio, leaving the agencies exposed to considerable risk if the eminent domain takings occur.
first tuesday take
The benefits of reverse eminent domain far outweigh its liabilities.
Consider that seizing mortgages through eminent domain will free underwater homeowners from excessive monthly mortgage payments and allow them to contribute more of their paycheck to the local economy instead.
The result for everyone: more consumer spending, more business growth, more jobs, more savings, more home sales, more new construction, more jobs, greater economic growth — a phenomenon known as a virtuous market cycle, a condition we all need badly right now.
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Today’s widespread negative equity was created by the perfect storm of the Millennium Boom and following bust. Coupled with the high unemployment rate, the slog continues, necessitating county intervention. However, there is no reason for lenders to make an example of San Bernardino’s homeowners for fear of moral hazard sparking a wave of defaults.
Aside from the proposal’s obvious safeguard against mass defaults (only homeowners current on their payments are eligible), lenders are further protected by the peculiar condition of today’s housing market. Although depressed in terms of 2005 sales, today’s California housing market has stabilized and is unlikely to go through another crisis anytime soon.
Unfortunately, “reason” seems to be a rare quality in the FHFA’s current administration, whose lender-based bias against cramdowns — despite evidence of their benefits — has recently been under much public scrutiny for its near total failure to help homeowners rather than lenders.
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The FHFA’s administrators have a tendency to bully policy makers into conformity with their personal prejudices.
Don’t let the debate be lender-engineered and one-sided; defend your homeowners and represent your industry by submitting a comment to the FHFA. Your comments might not alter their thinking, but they will clarify yours.
Re: “Fannie Regulator May Seek to Block Eminent Domain Seizures” by The Washington Post
well stated tom z. the subject of eminent domain should be near and dear to anyone who respects private property and the rights of the owners. for those of us who encourage folks to own real estate it should be first priority. whether grandma and her old shack on the strand in atlantic city or the note holder of a PERFORMING MORTGAGE. the use of eminent domain by san bernardino is surely the camels nose under the tent. that they are considering using it to SHANK HOLDERS OF MORTGAGES THAT ARE NOT IN DEFAULT is so far beyond preposterous as to be insane. this is the work of a few ‘venture capitalists’ who think a guaranteed return, resulting from a government confiscation qualifies as a venture. read up people…this idea came from some social engineer princess in san francisco…where there is NOTHING they do not think the government has a say in. the same folks that outlawed toys in kids happy meals has decided that they want to have an investment WITH NO RISK, BUT A FAT RETURN. hey, why not.
Yes I would agree that to advocate for the new scheme of Eminent Domain is irresponsible…so I ask the authors if you are one of the people that put their retirement into mortgage securities would you be in favor of this Eminent Domain scheme.
Interesting that a company that educates industry professionals wouldn’t be out there saying that personal financial management skills and education is what was lacking (I had no idea what I was signing!) during the bubble and that a safety net for bad decisions is not the way to fix this….why should these people just walk away from what they signed up for….if the market had kept going up, what do you think about an eminent domain scheme that allows the government to come in and take half the equity due to appreciation and tell the home owner thanks we’re the government and your screwed.
i absolutely will not be a party to more abuse of eminent domain. just as the Kelo case in connecticut was wrong so too is it wrong in this case.
learn the facts here and see the true motivations of the hacks proposing this…it is nothing more than the latest case of crony capitalism. by allowing ‘condemnation’ of performing loans ONLY we guarantee that the risk to the ‘businessmen’ is NIL, ZIP, ZERO, NADA! how nice it must be for them to have a virtually guaranteed rate of return far in excess of that they can earn without a little help from the government.
for first tuesday to endorse this is shameful. this is just the latest in a long line of nanny state responses that will have the taxpayer footing the bill for losses as they garner none of the profits. good god you cannot make this shite up.