Wall Street warns against using eminent domain to seize underwater mortgages

Heavy hitters in the financial industry are lining up against a new idea brewing among local government officials to help struggling homeowners by seizing control of their mortgages through eminent domain. With many areas of the country still digging out from the housing crisis, some local governments are considering taking on the underwater mortgages at a substantially lower price, thus making them more affordable for the borrower. The receptive response to the idea has put the financial sector on high alert. Firms are warning that a governmental action to seize private property to reduce its value could throw the entire housing market off kilter. The county of San Bernardino, Calif., is studying the idea, as is the county of Suffolk, N.Y. But the industry views it as an affront to the nature of capital markets, since the plan would require private holders to absorb substantial losses on mortgage-backed securities.

The Hill


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