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By Brandon Ivey

Eminent Domain Proposal a Battle of Constitutional Law, Analogies, Insults, Poetry

September 11, 2012

The battle to use eminent domain on non-agency mortgages with negative equity is far from finished, judging from some of the 74 comment letters submitted to the Federal Housing Finance Agency on Friday. The main arguments concern constitutional issues, with industry participants also turning to analogies, insults and poetry to make their cases.

For coverage of the more substantive issues on the eminent domain plan (seizing non-agency mortgages and refinancing them via the FHA’s Short Refinance program to eliminate negative equity), see this week’s issues of Inside Mortgage Finance, Inside MBS & ABS and Inside Nonconforming Markets.

For the analogies, insults and poetry, continue reading this post.

Graham Williams, CEO of Mortgage Resolution Partners, the firm with the most prominent eminent domain proposal, suggested that intervention by the FHFA would violate the “Contract Clause” of the U.S. Constitution as well as state law.

“High unemployment and low wages among those who owe money on loans in government-sponsored enterprise trusts, for example, pose a threat to the safety and solvency of the GSEs – as they make default likely,” he said. “But, by way of analogy, that does not confer upon FHFA the power to dictate wage and employment rules for the states, or to force private companies to hire GSE borrowers, or to force anyone to increase wages for GSE borrowers.”

A coalition of 26 industry groups opposed to MRP’s proposal claimed non-agency mortgage-backed security investors would suffer losses from eminent domain buyouts as well as from overall deterioration of the asset quality of MBS pools.

“Just as seizing the oceanfront portion of an oceanfront property would significantly devalue the remaining, newly landlocked parcel of land, seizing performing mortgage loans from a trust would increase the concentration of nonperforming loans, causing the trust’s securities to fall in value,” the groups said.

In addition to its comment letter to the FHFA, MRP published a critique of the comment letter submitted by the 26 industry groups including the Securities Industry and Financial Markets Association. The critique was by Robert Hockett, a professor at Cornell Law, and consultant for MRP who authored a paper that MRP has used to base its eminent domain plans.

“Unless we do actually live in a nation where any regulator, no matter how narrowly specialized its mandate, can make national marriage policy, set interest rates, and even declare war, then, we think SIFMA and its allies would do well to refresh themselves on the fundamentals of our constitution and federalist system of government,” Hockett said. “Then take a course on finance.”

Adrian Citroni of Maryland, who appears to be a mortgage broker, provided an even more extreme argument in opposition of eminent domain plans.

“Eminent Domain used in the context of restructuring mortgages is THEFT,” he said. “Any branch or bureau of government that would even consider such a measure are not thinking like Americans. These acts are unconstitutional and reek of the techniques used by the Soviets and the Nazis.”

A commentor named Lopaka Tanu, meanwhile, endorsed eminent domain and had some harsh words for the FHFA and its acting director, Edward DeMarco.

“You have no legal say over anything concerning eminent domain, period!,” Tanu said. “So tell Mr. DeMarco to kindly shut the hell up and stay out of things he has no concern with. If he won’t help people, he should get out of the way of others who will. His antics and threats are merely a tantrum of a little man being made irrelevant and they reflect badly upon what little good reputation the administration has left.”

And finally, Tom Brandon submitted an untitled poem endorsing the use of eminent domain:

I tiled the floor of my new livingroom
next to the hall, which leads to the door, to the porch, front garden, world.

I started in the centre
aligning my tile with the walls
by eye
setting the lines
straight as an arrow

and if it is off
even a bit
a fraction of an inch leaning to the left by the time I reach the wall it’s an inch or more
and that’s why you start in the middle to keep the imperfections at the edges.

vinyl tiles, one square foot
about a dolllar
paid for…cash
I own this floor.

“I believe to be effective, arguments need to be put forward in many ways with many flavors, as we all see things differently,” Brandon said. “For every homeless mathematician, there is a homeless poet.”

Other areas of interest


With mortgage production down noticeably this year from 2017, how many lenders might disappear via M&A or failure during the next 12 months?

10% or less. It’s not that bad out there.
11% to 25%. It’s a challenging market.
25% to 40%. It’s going to be very ugly.
No opinion.

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