Municipalities determined to follow through with a proposal to use local government eminent domain powers to nullify existing mortgage contracts of underwater borrowers should expect a swift response from the government conservator of Fannie Mae and Freddie Mac, warns an industry insider. Last week, executives of San Bernardino County, CA, voted to reject a proposal to use eminent domain to seize mortgages with negative equity to affect a principal reduction for borrowers. The decision was reportedly based on expert warnings about the destabilizing effect on the housing market such a policy would have, as well as a conspicuous lack of public support.