Both the Securities Industry and Financial Markets Association (SIFMA) and the American Securitization Forum (ASF) expressed their agreement with the Federal Housing Finance Agency's concerns regarding the use of eminent domain to take underwater mortgage from RMBS.
The letter is in response to the FHFA's Aug. 8 publication of a notice requesting comments on the potential use of eminent domain.
In that notice, FHFA said that as Fannie Mae and Freddie Mac conservator and regulator of 12 Federal Home Loan Banks, it had significant concerns about the use of eminent domain to revise existing financial contracts and around changing the value of the firms' securities holdings.
The FHFA is also worried about such programs negatively impacting the extension of credit to borrowers and on investors in the housing market.
In its letter, SIFMA said in its letter to FHFA said that the use of eminent domain would cause "irreparable damage to the recovering housing market." The trade industry group said that eminent domain is "unconstitutional on multiple grounds and violate[s] federal and state laws."
SIFMA shares many of the concerns the FHFA raised in its notice, including the impact of eminent domain plans on mortgage lending, mortgage finance markets and mortgage investors. The association also shared its concerns about the valuation and the profit motivation that underlies this scheme and the constitutionality of the proposal.
It also reiterates similar points highlighted in a letter drafted by the ASF on Sept. 7. In the letter, which is also written in response to the FHFA notice, ASF Executive Director Tom Deutsch said that the use of eminent domain to seize underwater mortgages would ultimately cost taxpayers "billions of dollars," because it would reduce the value of the private-label MBS held by the GSEs.
The ASF also agreed with FHFA concerns that the proposal would slow mortgage credit availability and require much higher borrower down payments, since would create unquantifiable new risks for institutional investors that provide billions of dollars in mortgage credit to borrowers."