At least for the next year, Congress has materially impaired the ability of local governments to seize underwater residential mortgage loans through eminent domain by cutting off federal insurance or guarantees to refinance the seized mortgages and then securitize the refinancings. Without this federal “take out” through mortgage insurance provided by the Federal Housing Administration (“FHA”), and guarantees of mortgage-backed securities by the Government National Mortgage Association (“Ginnie Mae”), local governments will have to find private sources of long-term funding to pay for loans that they attempt to seize.
Is a refusal to make or buy residential mortgage loans from jurisdictions that seize loans through eminent domain a federal crime or a reasoned response to excessive government intervention? That’s the question that people are asking today in light of the comments of Lt. Governor of California Gavin Newsom. Yesterday, he asked the U.S. Department of Justice to investigate and prosecute those in the industry who advocate staying away from jurisdictions exercising eminent domain. Did he expect the industry instead to send thank you notes? Read More