The eminent domain controversy in Richmond, Calif., continues with several senators publicly asking housing regulators to push back at any proposal that would allow municipalities to offer principal write-downs to underwater borrowers by acquiring their mortgages through eminent domain.
So what prompted the strongly worded letter four senators mailed to Department of Housing and Urban Development Secretary Shaun Donovan and Treasury Secretary Jack Lew?
The answer apparently is an eminent domain rescue plan that reached a little too far for the senators' liking.
The city of Richmond, Calif., has gone as far as mailing letters to mortgage holders, asking them if the city can buy out their interests in underwater mortgages at a discount.
In the same letter, the city reportedly threatens to take over the mortgages using eminent domain if a deal is not reached.
This particular action prompted the letter from the senators advising Donovan and Lew that the Obama administration has been relatively silent on the issue and should give the mortgage market back-up.
While the senators noted the Federal Housing Finance Agency (FHFA) has publicly voiced its opposition to eminent domain, saying it could “negatively affect the extension of credit to borrowers seeking to become homeowners," the senators believe the Obama administration "has been largely silent on the subject."
The four senators, Pat Toomey (R-Pa.), John Boozman (R-Ark.), Mark Begich (D-Alaska) and Heidi Heitkamp (D-N.D.), told Lew and Donovan they want more answers from the Obama administration after a HUD representative told them the housing agency is monitoring the situation, but failed to specify what actions need to be taken.
Fearing eminent domain in Richmond will send shock waves through the housing market, the senators warned regulators of a dire impact on the entire mortgage lending space if eminent domain fully takes root.
To address the issue, the senators want HUD to use its existing authority to prevent the FHA from insuring mortgages on any properties affected by an eminent domain proposal.