MAY 17, 2013 11:48am ET

FHA Considering Policy on Eminent Domain

MAY 17, 2013 11:48am ET
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The Department of Housing and Urban Development is coming under pressure from House Republicans to issue a policy that would ban the Federal Housing Administration from refinancing any loans that have been seized by a county via eminent domain.

At a House Financial Services subcommittee hearing Thursday, Reps. Blaine Luetkemeyer, R-Mo., and Edward Royce, R-Calif., noted counties in their states are exploring the use of eminent domain to seize private-label underwater mortgages. The investors pushing this eminent domain program plan to refinance the borrowers into FHA-insured loans.

The congressmen also noted that the Federal Housing Finance Agency has barred Fannie Mae and Freddie Mac from refinancing loans seized through eminent domain. But the agency confirmed there is no such policy.

HUD deputy assistant secretary Charles Coulter told the congressmen that FHA does not have a policy on eminent domain and he was unaware of the GSE policy. “We will certainly take a look at it and consider something similar,” he said. Coulter oversees the FHA single-family program.

Coulter noted that HUD secretary Shaun Donovan has “expressed a degree of concern” about eminent domain. And the FHA official pledged to get back to the congressmen with a written statement regarding FHA’s policy.

In light of Fannie and Freddie’s policy, “it would be highly improbable, I believe, for FHA to put itself in a position where it is the only insurer on those types of refinance transactions,” he testified.

The GSE regulator has not formalized a policy that would bar Fannie and Freddie from refinancing loans seized via eminent domain. The FHFA solicited industry input on the eminent domain issue back in August 2012. But the agency has not taken any further steps.