A proposal by San Bernardino County to use eminent domain to seize, and then restructure, underwater private-label mortgages would result in more than just losses to private investors. Fannie Mae, Freddie Mac and the Federal Home Loan Banks are also in major investors in private-label securities and they too would suffer if the county took over what is estimated to be 150,000 underwater mortgages.

The losses to the government-sponsored enterprises would likely be minimal — particularly in comparison to the more than $160 billion in losses so far to taxpayers. But the concern is that the use of eminent domain powers by municipalities would set a precedent, throwing a wrench in the Obama administration's long-term plans to reduce the government's role in housing by turning as much as possible over to the private sector.

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