U.S. Department of Housing and Urban Development Secretary Shaun Donovan told attendees at a Feb. 12 Politico event that the use of eminent domain to force the sale of private-label mortgages out of securitized trusts needs to be decided by the courts, National Mortgage News reported Feb. 13.
Mortgage and housing industry groups have asked HUD to rule that the Federal Housing Administration-insured loans will not be used to refinance loans on properties that are condemned and taken by local governments under eminent domain.
Donovan told attendees that there are very specific rules about the use of eminent domain and “it needs to be decided by the courts,” National Mortgage News reported. He added that the courts will have to decide “if it is legal,” and whether local municipalities are “paying a fair price for these mortgages. I think those are high bars. And they should be high bars.”
The American Land Title Association expressed disappointment in Donovan’s remarks, with the organization’s chief executive Michelle Korsmo telling National Mortgage News, “Waiting for these eminent domain proposals to be resolved in the court system will likely take years and cost these interested parties significant dollars.”
In August, then-acting Federal Housing Finance Agency Director Edward DeMarco said he would order Fannie Mae and Freddie Mac to stop purchasing mortgages in jurisdictions that use eminent domain to restructure loans. New FHFA Director Mel Watt may be reviewing this issue as well.
HUD’s current stance is that the use of FHA to refinance seized mortgages can only be decided when the agency receives a loan application, as indicated in an Aug. 12 letter to three California congressmen when Richmond, Calif., was facing private lawsuits to prevent it from condemning and refinancing underwater private-label loans.
National Mortgage News reported that the letters says, “Pending legal developments and possible further execution of the plans in questions, HUD does not know whether any new mortgage which might be created would qualify for insurance by the Federal Housing Administration.