Chicago Mayor Rahm Emanuel on Tuesday shot down the idea of using eminent domain to seize underwater mortgages, the Chicago Tribune reported.

"I don't think it's the right way to address the problem," Emanuel told reporters at a press conference while Chicago aldermen were in a committee meeting discussing a proposal to seize the mortgages from private investors and restructure them for borrowers. The City Council said in July that it intended to hold hearings to consider the proposal.

"I think there are other places to do it. I don't think it's the power of the city to do, to deal with the housing issue," Emanuel said. "We have a national issue. I think we have to address the issue. I just don't think that's the right instrument."

The Federal Housing Finance Agency threatened last week to take action against municipalities that attempt to use eminent domain to refinance underwater mortgages.

Officials in San Bernardino County are expected to hold a public meeting on Thursday and issue a request for comment on a plan that would use private funds raised by Mortgage Resolution Partners, a San Francisco venture capital firm, to acquire and restructure "underwater" mortgages.

Bondholders have objected to the plan, in part, because the homeowners are not in default and are still paying their mortgage even though they owe more on their loans than their homes are worth.

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