Mortgage industry groups are turning to Congress in their efforts to prevent local communities from using their eminent domain powers to seize and restructure underwater loans.
With industry support, Rep. John Campbell, R-Calif., this week introduced a bill that would cut off a community’s access to government-backed loans if local officials invoke
The Mortgage Bankers Association and other industry groups are concerned that the use of eminent domain could undermine the mortgage finance system and lead to large losses at Fannie Mae, Freddie Mac, the Federal Home Loan Banks and other holders of private-label MBS.
An eminent domain proposal advanced by the
Speaking at a MBA symposium on eminent domain, Campbell said bankrupt communities in his state have been tempted by some investors to use eminent domain to assist underwater borrowers.
The congressman said his bill is intended to send a message to those investors that they should stop prompting their “abusive” proposals. “If they don’t stop, we will proceed with the bill,” Campbell warned.
The Campbell bill would prohibit Fannie, Freddie, Federal Housing Administration and Department of Veterans Affairs from insuring or guaranteeing single-family loans in counties that use eminent domain.
MBA promptly endorsed the Campbell legislation. (For a larger story on the issue see the Monday, weekly edition of National Mortgage News.)
