Looks like, in full DeMarco-style, this is planned to be a sham to make sure the GSEs' bully power is thrown in against municipalities who might productively use eminent domain to alleviate local foreclosure crises (which would remind us of Fannie Mae's threats against states who had passed, or were about to pass, anti-predatory lending laws in the early 2000s).

The Federal Housing Finance Agency (FHFA) will post a notice in the Federal Register on Thursday announcing that it was open to input from any persons with views on the subject of eminent domain as a mechanism to restructure performing loans.  The agency thereby entered the growing controversy around the subject.


FHFA has now expressed its concern over the proposals. Citing its role as conservator of Freddie Mac and Fannie Mae (the GSEs), FHFA said its obligation is to preserve and conserve the GSE's assets and to minimize costs to taxpayers. These entities purchase a large portion of the mortgages originated in the U.S. the notice says, and they hold private label mortgage backed securities containing pools of non-GSE loans. The Banks also have large holdings of such securities and accept collateral that consists of mortgages of member financial firms pledged in exchange for advances of funds.

The notice, signed by FHFA COO Richard Hornsby says the agency has significant concerns about the use of eminent domains to revise existing financial contracts and the alternation of the value of GSE or bank securities holdings. In the case of the GSEs resulting losses would ultimately be borne by taxpayers. FHFA also expressed concern that the programs could undermine and "have a chilling effect" on the extension of credit by investors that support the housing market.

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