The Federal Housing Finance Agency (FHFA) has threatened to restrict or even halt lending in cities that use eminent domain to slash borrowers' mortgage debt. The FHFA has warned that it could pull out of those markets that use the controversial tactic to seize home loans from distressed homeowners and replace them with more affordable financing. Doing so would significantly diminish the availability of home loans to new borrowers, as most new loans in this country are underwritten by Fannie Mae and Freddie Mac -- which are controlled by the FHFA. It now falls on local elected leaders to decide whether using eminent domain laws to help struggling borrowers and limit foreclosures is worth pursuing. The matter grabbed headlines this week when Wells Fargo and Deutsche Bank sued the city of Richmond, Calif., to stop its plan for mortgage seizures.
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