The use eminent domain, by more U.S. cities, to seize underwater mortgages out of RMBS trusts would spell trouble for bondholders; but luckily cities may turn to other options to help homeowners.

Last week the city of Richmond, California contacted servicers in an attempt to buy loans out of RMBS trusts. If Richmond or other U.S. cities implement the plan created by Mortgage Resolution Partners, it would increase losses on RMBS.

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