Bill Striking at Eminent Domain Reintroduced

Representative John Campbell (R-CA) has reintroduced the Defending American Taxpayers From Abusive Government Takings Act he originally sponsored in September of 2012. The law is a reaction to the plans of several municipalities early last year to use their power of eminent domain to seize underwater mortgages.

Stockton, California; Chicago, Brockton, Massachusetts; and several other municipalities suggested the plan under which they would purchase loans on homes in their communities from securitized mortgage pools, compensating the investors at the market value of the collateral properties. The loans would then be restructured to put homeowners back into an equity position and resold on the secondary market.

Campbell's bill would amend the Federal National Mortgage Association Act and the Federal Home Loan Mortgage Corporation Act to prohibit Fannie Mae and Freddie Mac from purchasing any mortgage secured by a property within a county that had exercised eminent domain for such a purpose within the preceding 120 months. It would also amend the National Housing Act to prohibit the Secretary of the Department of Housing and Urban Development (HUD) from insuring or guaranteeing any housing or small business loan in such counties. The legislation would effectively dry up housing related credit anywhere eminent domain power was exercised as a loan modification tool.

The cities which had proposed using eminent domain all pulled back from the idea in the face of a storm of objections from Wall Street and the Federal Housing Finance Agency, but it was recently given new life with an article published by the Federal Reserve Bank of New York. The paper, by Robert Hockett, a Cornell Law School professor, advocates the use of eminent domain as a tool which could be used by state, local, and federal government to assist distressed homeowners.

The Mortgage Bankers Association (MBA) quickly released a statement commending Campbell for reintroducing the bill and offering the Association's support. David H. Stevens, MBA's President and CEO, called the proposed use of eminent domain "clearly unconstitutional" and said, "Using eminent domain to seize mortgages will result in tighter, more expensive credit for potential home buyers and those looking to refinance, driving down home values and threatening local economic recovery.  Further, cramming losses down on existing mortgage backed securities holders will drive down the value of millions of Americans' investments, including pension plans, mutual funds and 401(k) retirement accounts.