A controversial plan that would allow municipal governments to rescue underwater homeowners by taking over their loans through the power of eminent domain has been receiving some attention and consideration by several localities, most notably the City of Richmond, California. While NAR policy leaves it to the states and not the federal government to establish rules and laws governing eminent domain, at the request of the Federal Housing Finance Agency (FHFA) NAR did communicate concerns regarding the impact of such proposals on lending in these municipalities.
On August 8, 2013 the FHFA released a statement on the use of eminent domain to restructure performing loans along with an analysis of the implications for Fannie Mae, Freddie Mac and the FHFA in which the agency states that using eminent domain to restructure mortgage loans presents a clear threat to the safety and soundness of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
FHFA indicated that it might initiate legal challenges to any local or state action that sanctions the use of eminent domain to restructure mortgage loan contracts that affect its regulated entities. The statement serves as a warning to municipalities that FHFA could prevent Fannie Mae and Freddie Mac from conducting business with governments that follow through with any proposal that uses eminent domain to restructure mortgage contracts, as well as face potential federal legal action. NAR will continue to work with state and local REALTOR associations to educate municipal leaders on the potential impact of the use of eminent domain.