by the Consumer Financial Services Group
In response to threats from local governments in
California and elsewhere to use eminent domain to acquire and restructure
underwater mortgages, the Federal Housing Finance Agency (FHFA) has announced
that it "has determined that action may be necessary on its part...to avoid
a risk to safe and sound operations and to avoid taxpayer expense."
The FHFA is the regulator and conservator of Fannie Mae
and Freddie Mac and the regulator of the Federal Home Loan Banks (FHLBs).
In its notice published in the Federal Register on
August 9, 2012, the FHFA stated that it "has significant concerns about
the use of eminent domain to revise existing financial contracts and the
alteration of the value of [securities held by Fannie Mae, Freddie Mac and the
According to the FHFA, the use of eminent domain could
result in losses to Fannie Mae and Freddie Mac that "would represent a
cost ultimately borne by taxpayers" and "could undermine and have a
chilling effect on the extension of credit to borrowers seeking to become
homeowners and on investors that support the housing market."
In the notice, the FHFA requests input on various
questions raised by the use of eminent domain, such as the constitutionality of
such use, its effect on holders of existing securities, the impact on
performing mortgages, and the role of the courts in administering or overseeing
an eminent domain program. Input will be accepted "from any person
with views on this subject" through September 7, 2012, "as the agency
moves forward with its deliberations on appropriate action."
The FHFA's notice follows closely on the heels of
its July 31, 2012, letter to members of Congress and a related
paper explaining the FHFA's decision not to allow Fannie Mae and Freddie
Mae to participate in the Home Affordable Modification Program's Principal
Reduction Alternative. In the FHFA's view, the principal forgiveness
contemplated by the program "would not make a meaningful improvement in
reducing foreclosures in a cost effective way for taxpayers."
Ballard Spahr's Consumer Financial Services Group is
nationally recognized for its guidance in structuring and documenting new
consumer financial services products, its experience with the full range of
federal and state consumer credit laws throughout the country, and its skill in
litigation defense and avoidance (including pioneering work in pre-dispute
arbitration programs). The group includes the firm's Mortgage Banking Group,
which combines broad regulatory experience assisting clients in both the
residential and commercial mortgage industries with formidable skill in
litigation and depth in enforcement actions and transactions.
The CFS Group also produces the CFPB Monitor, a
blog that focuses exclusively on important Consumer Financial Protection Bureau
developments. To subscribe to the blog, use the link provided on the right.
more information, please contact CFS Practice Leader Alan S. Kaplinsky at
215.864.8544 or firstname.lastname@example.org; CFS Practice Leader Jeremy T.
Rosenblum at 215.864.8505 or email@example.com; Mortgage Banking
Practice Leader Michael S. Waldron at 202.661.2234 or
firstname.lastname@example.org; or Mortgage Banking Practice Leader Richard J.
Andreano, Jr., at 202.661.2271 or email@example.com.
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