Federal legislation introduced last year that would prevent local governments from seizing underwater mortgages packaged into private-label residential mortgage-backed securities was reintroduced, Mortgage Daily reported July 22.
Rep. John Campbell, R-Calif., originally introduced the Defending American Taxpayers from Abusive Government Takings Act in September 2012.
The proposed law would amend the charters of Fannie Mae and Freddie Mac to prevent them from guaranteeing or buying loans secured by residential properties in areas where eminent domain has been used to seize mortgages during the last 10 years. It also would amend the National Housing Act to prevent the Federal Housing Administration from insuring such loans and prevent the U.S. Department of Agriculture from making loans in those areas, Mortgage Daily reported.
Campbell noted that local governments have once again started to entertain the idea of using federal taxpayer dollars to seize distressed home loans, although profits would be accrued by private entities.
He said that reintroducing the bill is an attempt to “stop reckless city and county governments from enacting profiteering schemes that seek to cash in on the plight of underwater homeowners through the arbitrary seizure of private home loans,” Mortgage Daily reported.
Campbell added that “These schemes pose a critical threat to recovery of the housing sector, as lenders and investors, which a sustainable housing finance system relies on, would not have any faith in the durability of contracts. Moreover, the savers and retirees who own these mortgages, many of them through their pension funds and 401(k) accounts, would be exposed to serious losses,” Mortgage Daily reported.
The congressman also worried that eminent domain programs could result in cities valuing properties as low as possible in order to increase their own profits while wiping out private lending.
The bill currently is awaiting consideration by the House Committee on Financial Services.