[IMC] News Update: Firestorm Growing Over Mortgage Seizure Plan

[Housing Affairs Letter]

**Firestorm Growing Over Mortgage Seizure Plan**Richmond, CA's plan to
take the lead in seizing troubled mortgages through eminent domain
ignites a political firestorm and triggers legal roadblocks that could
put the concept on hold. A major obstacle is a position articulated by
Alfred Pollard, the head lawyer of the Federal Housing Finance Agency.

Pollard, saying he speaks for himself and not the FHFA, cautions the
regulator of Fannie Mae and Freddie Mac to step back on allowing the
GSEs to insure any mortgage seized under the property-taking concept
designed by San Francisco-based Mortgage Resolution Partners (MRP). The
FHFA memo emerges a week after the filing of a lawsuit by a group of
investors seeking to halt Richmond's effort.

MRP's plan to use eminent domain calls for local governments to buy
mortgages at the fair market value of their corresponding homes. The
government would then help the "underwater” homeowners refinance their
mortgages, relieving them of paying on a loan far exceeding the current
value of their homes.

There is little risk for MRP, which enters the transaction after the
city seizes a mortgage and writes down the principal to conform to the
current value of the home. Acting as a middleman, MRP negotiates with
new investors to buy the loan and takes a fee for the effort.

The loans are performing, non-delinquent ones -- i.e., homeowners are
current with payments -- lessening the risk they will default at some
future point. Loans already headed for foreclosure are not considered.

Pollard's memo expresses the FHFA's view that using eminent domain to
seize underwater mortgages "presents a clear threat to the safe and
sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan
Banks.”

The memo also indicates the FHFA has several options to undertake if
mortgages begin to be seized through eminent domain, including the
initiation of legal challenges and directing the GSEs to "limit,
restrict or cease business activities within the jurisdiction of any
state or local authority employing eminent domain to restructure
mortgage loan contracts.”

HUD has been mum on whether the Federal Housing Administration would
insure loans refinancing seized mortgages. The federal government now
backs about 90% of the mortgage loans; its refusal to insure loans
refinanced through eminent domain would leave Richmond with the
responsibility to back the loans.

Richmond has already notified 624 homeowners, offering to buy their
loans. Those offers would need to be refused before the city could
follow through with its vow to invoke eminent domain powers in order to
force the sale of the non-delinquent loans so the homeowners could get
their debt balances reduced to comport with the current actual values of
their properties.

**Info**: For more on this and other issues important to the U.S.
housing sector, get a sample of this week's edition of Housing Affairs
Letter, located online at www.cdpublications.com
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