The Securities Industry and Financial Markets Association has reached a consensus on the issue of cities using their power of eminent domain to refinance underwater mortgages (using reducing principal reductions) that reside in private-label MBS, saying it will foul up the securitization process.

The association decided that loans to borrowers in municipalities that have initiated condemnation proceedings to seize mortgage loans “will not be deliverable into TBA-eligible securities on a going-forward basis,” SIFMA said on Thursday.

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