HUD and FHFA Issue Statements on Eminent Domain Proposal – August 21, 2013

Both HUD and the Federal Housing Finance Agency (FHFA) issued statements this month regarding the City of Richmond, California proposal to use eminent domain to acquire homes of underwater homeowners for less than their current market value.  The City would then re-sell the homes to the owners at market value using FHA-insured mortgages (see Slate and the Wall Street Journal for plan details).  The plan raises many legal questions including whether the FHA could insure such properties.  HUD, in an August 12 letter to three members of the House of Representatives, said legal uncertainties make it impossible to say at present whether FHA insurance could be used.  The FHFA, however, issued a statement and legal memo on August 8 opposing the use of eminent domain, as “a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.”