Congress Drafts Bill Prohibiting Eminent Domain Mortgage Seizures

Posted on Sep 17, 2012

Congress just stepped into the dispute over the right of Chicago and two communities in California to use eminent domain to help behalf of local homeowners.  Representative John Campbell (R-CA) today introduced a bill titled The Defending American Taxpayers from Abusive Government Takings Act which would prohibit the four major government sponsored mortgage providers from buying loans in any community who do what is proposed in Chicago, Berkeley and San Bernardino County, California.

In summary, San Bernardino County proposed in June to use eminent domain to invoke eminent domain to take underwater mortgages from investor pool and restructure them to reflect the current market value of collateral to provide relief to homeowners.  The municipality would then package the loans into pools and sell them on the secondary market.

There was an immediate negative reaction by at least twenty trade organizations led by the lobbing group representing the securities industry.  The Federal Housing Finance Agency (FHFA) as conservator for GSEs also joined in and has just ended a period of public comment on the subject.  All opposing parties maintain that such seizures constitute an unconstitutional use of the eminent domain power and an unwarranted abridgement of investors' property rights.  SIFMA has also made it clear they would litigate any eminent domain action and that it would be unlikely that any further loans would be available to homeowners in those communities.

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