FHFA Seeks Comment on Potential Response to Use of Eminent Domain to Restructure Loans

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On August 8, the FHFA released a notice commenting on the potential use of eminent domain by localities to restructure mortgages for borrowers who are current but “underwater.” Several localities have stated publicly that they are considering use of their eminent domain authority to seize such loans and sell them to private investors who would restructure the loans to the borrowers’ benefit. The FHFA notes “significant concerns” with the potential practice, including that Fannie Mae and Freddie Mac would sustain losses that would ultimately be borne by taxpayers, and mortgage lenders may restrict their lending activities. The FHFA seeks feedback on a series of factors that would inform its potential response to the use of eminent domain, such as the impact on seized mortgages and whether the proposed use of eminent domain is constitutional.