There is another great housing foreclosure debate raging in governments – this time over the issue of eminent domain. Some local governments are throwing around the idea of condemning mortgages through eminent domain. It would work like this – a town or county “would seek court approval to pay a ‘fair market’ value to a lender or investor holding a homeowner’s underwater mortgage.” The “fair market value” would be substantially less than what is left on the balance of the mortgage. Then, the local government would “offer to sell the smaller mortgage back to the homeowner, who would refinance the outstanding balance with a smaller loan.” The proposed action is being fought by the mortgage finance industry and the FHFA (the regulator of Freddie Mac and Fannie Mae). Struggling towns, on the other hand, are reaching for any sort of foreclosure relief, citing this radical move would help boost local housing markets and speed up some economic recovery.
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