WASHINGTON — The regulator for mortgage giants Fannie Mae and Freddie Mac on Wednesday warned against the use of eminent domain to restructure home loans.
San Bernardino County has proposed using such powers to seize distressed mortgages at a discount and then refinance them for struggling homeowners. Chicago officials also are considering the idea, according to reports. Although mortgage rates are near record lows, underwater homeowners are essentially blocked from refinancing their loans.
According to CoreLogic, some 11.4 million, or 23.7%, of all residential properties with a mortgage are "underwater" or "upside down," meaning that borrowers owe more on their mortgage than their homes are worth. There are federal programs to aid such borrowers, but so far they are only available to a small segment of those mortgage holders.
The Federal Housing Finance Agency made clear its opposition to the use of eminent domain for fixing mortgages.
"As conservator of Fannie Mae and Freddie Mac and regulator of 12 Federal Home Loan Banks, FHFA has significant concerns about the use of eminent domain to revise existing financial contracts and the alteration of the value of the companies' securities holdings," the agency said in a statement.