San Bernardino County decided against a controversial proposal that would have allowed the county to seize underwater loans held in private-label MBS trusts using its power of eminent domain.

The plan proposed seizing mortgages from private-label securitizations in which homeowners are current on their payments but owe more on their mortgages than their homes are worth.  The principal on the loan would be written down and refinanced into a Federal Housing Authority (FHA) loan with a lower mortgage rate.

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