Freddie Mac used its second-quarter earnings call to field a question on eminent domain, and discuss the risk it poses to the GSE's residential mortgage-backed securities portfolio.
General Counsel William McDavid indicated the government-sponsored enterprise would consider legal action to block the loan sales, with permission from the Federal Housing Finance Agency. McDavid said these loans sales are "pressured" and not the best deal for taxpayers.
The mayor of Richmond, Calif., recently announced the adoption of an eminent domain expansion plan — to keep homeowners out of foreclosure by seizing underwater mortgages.
Such a plan would increase risk of losses in securitization pools holding these mortgages as the underlying collateral. Investor trade group, Securities Industry and Financial Markets Association remains categorically opposed. In an email in reaction to the Freddie announcment, SIFMA said "this misuse of eminent domain is likely to harm the savings of everyday Americans around the country who have money invested in these mortgage-backed securities through their retirement funds and other investments."
"Additionally, this practice would introduce new significant and quantifiable risks into mortgage lending, which could raise borrowing costs and restrict credit availability at a time when our nation needs private capital to return to the housing markets," SIFMA added.
So far, many townships attempted to implement the plan, in some form or another, but without success.