Freddie Mac May Sue California City on Eminent Domain Loan Seizures
Location: Washington, D.C.
Date: 2013-08-09
Freddie Mac, the government-owned mortgage finance company, on
Wednesday said it is considering legal action against Richmond,
California, if the city uses eminent domain to seize mortgages of
local residents who owe more than their properties are worth in a
bid to keep them in their homes.
The northern California city recently sent notice to the holders
of more than 620 so-called underwater home mortgages in the city,
asking them to sell the loans to the city. It would buy the
mortgages for 80 percent of the fair value of the homes, write them
down and help the homeowners refinance their loans.
"Our sense is that those so-called voluntarily loan sales would
not be very voluntary," said Freddie Mac's general counsel William
McDavid in a conference call with reporters to discuss the company's
second-quarter financial results. "They're loan sales under pressure
- in fact, under a threat of seizure by eminent domain. We would
consider taking legal action."
Freddie Mac and its larger sister company, Fannie Mae, are some
of the biggest buyers of private home-loan bonds. The two
government-backed companies' finances would be affected if the
eminent domain plan went forward and wiped out the worth of those
bond investments.
"Fannie Mae and Freddie Mac are investors in these securities.
This is an issue that we are discussing," said Denise Dunckel, a
spokeswoman for the companies' regulator, the Federal Housing
Finance Agency.
Both companies, operating under conservatorship since they were
taken over by the government in 2008 during the financial crisis,
would need the Federal Housing Finance Agency's permission to take
legal action against the city of Richmond and possibly block the
eminent domain seizures. The FHFA itself has previously raised
concerns with an approach like Richmond's.
Using eminent domain in this fashion to force banks and other
investors to sell mortgages is novel. Historically cities have used
the power to force the sale of properties if they obstruct the
construction of a project deemed beneficial to the wider community,
such as a road or bridge.
Richmond is working with San Francisco-based Mortgage Resolution
Partners, a private investment firm that has been pitching the plan
to U.S. cities and municipalities for more than a year. MRP, raising
money from private sources, would work with the city to obtain the
financing to buy the distressed mortgages and restructure them. MRP
would receive a fee for every troubled loan it restructured under
the plan.
GlobalPost
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