Feds Won't Back Mortgages Seized by Cities

A controversial plan to use a municipality's eminent domain powers to seize properties in default (happening in the cities of Richmond and San Francisco as well as Chicago) has suffered a severe setback.  FHA, Ginnie Mae, and HUD now have no funds to insure, securitize, or establish a federal guarantee of any mortgage or mortgage backed security that refinances or replaces a mortgage that was subject to eminent domain condemnation or seizure by a state, municipality or other political subdivision of the state.  The funding to allow such federal guarantees was removed in the Fiscal Year 2015 Omnibus Appropriations bill.  This should make it much more difficult to finance or resell any such securities under these programs. Such controversial mortgage seizure programs were proposed by some companies that promised municipalities a portion of the proceeds when the mortgages were resold. Under the program, the defaulting or underwater homeowners would also be allowed to stay in their homes with the mortgage amount reduced. Locally, the cities of Richmond and San Francisco have approved a study of the mortgage seizure plans which was being monitored by other cities in California. Further, both cities are the subject of litigation by primary lenders who are hardest hit by the questionable mortgage seizure programs.