WASHINGTON (9/14/12)--The Credit Union National Association (CUNA) said it supports the Federal Housing Finance Agency's (FHFA) opposition to the proposed use of eminent domain to speed some mortgage refinances.
Last month, the FHFA said it would consider taking action against municipalities that used eminent domain to revise mortgage loans. The agency did not say which actions it would take, but sought public comment on the issue in a Federal Register release.
The agency release followed the June announcement that California's San Bernardino County and two of its city governments, Fontana and Ontario, could move to use their eminent domain powers to seize mortgage loans from private investors.
The FHFA expressed concern that losses resulting from such programs would ultimately be paid for by taxpayers. "FHFA has determined that action may be necessary on its part as conservator for the enterprises and as regulator for the banks to avoid a risk to safe and sound operations and to avoid taxpayer expense," the agency wrote, adding that such actions could "negatively affect the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market."
In a comment letter to the FHFA, CUNA Deputy General Counsel Mary Dunn said CUNA has serious concerns about the use of eminent domain as a means to achieve relief for distressed home mortgage borrowers. CUNA does not believe this use of eminent domain "would provide the level of relief to affected homeowners, communities, and securitizers that some have predicted."
CUNA also noted that the proposed use of eminent domain would likely be challenged in court. This outcome could create issues for affected homeowners, as courts could struggle, perhaps for years, with issues created by the proposal. One such issue would be how to value the loans and properties involved so that 'just compensation' may be provided to homeowners whose homes have been seized by the government.
For the full CUNA comment letter, use the resource link.