to seize mortgages.
The committee voted to adopt a legislative provision which, if signed into law, would effectively outlaw the plan, which is under consideration in a number of municipalities hit hard by the mortgage crisis.
Last year, the city of Richmond, Calif., began exploring a plan in which the city, in partnership with the private firm Mortgage Resolution Partners, would buy underwater mortgages, seizing the properties through eminent domain should the note-holders refuse to sell. The city would then refinance the mortgages at terms easier for the homeowners to meet. Other municipalities have taken notice of the plan; the idea has been or is being considered in Chicago, Baltimore, Newark, N.J., and other cities throughout the country.
But the controversial plan has raised the ire of both industry groups and regulators. The FHFA said it would instruct Fannie Mae and Freddie Mac not to guarantee loans in municipalities that used the plan, citing concerns that “such programs could negatively affect the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.”
The head of the Securities Industry and Financial Markets Association praised the House committee for taking action.
“SIFMA commends the members of the House Committee on Appropriations for adopting a provision which would prevent the Federal Housing Administration from using taxpayer monies to facilitate a scheme by which eminent domain would be used to seize mortgage loans from Main Street investors,” said Kenneth E. Bentsen Jr., president and CEO of SIFMA. “Should FHA
allow this scheme to move forward, investors in pension plans, 401Ks, mutual funds and other savings and retirement accounts will suffer the losses. Today's action is an important development in the fight to remove a cloud hanging over our housing markets.”
The House Appropriations Committee is taking steps to stop a controversial plan that would use