Californian city to use "eminent domain" to seize mortgages

|By:, SA News Editor

Richmond in California has approved a plan for the city to become the first in the country to forcibly acquire underwater mortgages using the power of "eminent domain," which enables governments to seize private property for a public purpose.

The idea is for the council to work with investor group Mortgage Resolution Partners to buy delinquent mortgages at deep discounts to the associated properties' market valuations, make the loans more affordable for home owners and avert foreclosure.

However, critics fear that the program could hurt the market for mortgage-backed securities, provoke lawsuits and endanger Richmond's finances.

The FHFA has said it will press Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) to limit or cease business where eminent domain is approved, a move that would shut off most mortgage financing in the affected areas.