FHFA Weighs in on Use of Eminent Domain for Mortgage Reductions

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FHFA Weighs in on Use of Eminent Domain for Mortgage Reductions

On August 8, the Federal Housing Finance Agency (FHFA) requested public comment on the use of eminent domain authority by municipalities to seize mortgage loans for purposes of offering homeowners a reduced mortgage balance. The County of San Bernardino, California and the City of Chicago, among other municipalities, have expressed interest in eminent domain as a means to reduce the number of residents whose mortgage obligations exceed the current market value of their home.

Under the eminent domain proposal, municipalities would raise funds from investors to provide sufficient resources to condemn individual borrower mortgages. The plan would permit a municipality to condemn any lien secured by real property as long as the holder of the lien is provided just compensation.

Homeowners whose mortgage and other liens have been condemned would then be offered a mortgage loan with a reduced balance, ensuring the owner is in a positive equity position. Municipalities believe reducing the amount of mortgage debt that homeowners carry will stabilize home values, reduce foreclosures, limit community blight, and provide a more stable base of property tax revenue.

In requesting comment on the proposed use of eminent domain to reduce homeowner mortgage balances, FHFA states the agency has “significant concerns with programs that could undermine and have a chilling effect on the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.” FHFA also reveals that it may direct Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, which collectively fund more than 60 percent of all mortgages, to “avoid a risk to safe and sound operations and to avoid taxpayer expense.”

To read the FHFA announcement and the Federal Register notice requesting public comment, click here.

As part of our ongoing Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org.  CAI will continue to monitor and participate in shaping changing federal housing policies to ensure the perspective of community associations is heard. This is one of the many benefits of belonging to an organization that works for you on the local, state and federal level.

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More Housing Uncertainty in 2012

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More Housing Uncertainty in 2012

CAI members know that 2011 saw the beginning of the federal government’s effort to rebuild our mortgage finance system in the wake of the worst housing and economic crisis since the Great Depression. As Congress and a host of federal agencies worked through this process, hundreds of pages of proposed regulations were drafted and issued for public comment and analysis. From new Federal Housing Administration (FHA) condominium lending guidelines, to pending regulations on Qualified Residential Mortgages (QRM), to Qualified Mortgages (QM) and to the Federal Housing Finance Administration’s transfer fee rule, tomorrow’s mortgage market began to take shape. As we move into 2012, this process will enter a critical final phase and may trigger another round of uncertainty and confusion in the housing markets.

First, in early 2012, CAI expects the federal government to release the final draft regulations on QRM and QM. QRM regulations deal with the structure of mortgages and QM deals with qualification criteria for future borrowers. As drafted, both present a set of challenges to the housing markets in general and to community associations in particular.

As reported by CAI, the pending QRM proposal would have a significant impact on potential buyers. New requirements would mandate minimum down payments of 20 percent prevent financing of closing costs and realtor fees and would disqualify buyers with just one late payment on any installment account. It is estimated that 70 percent of currently qualified borrowers would not meet this standard. While it is expected that the QRM draft will be significantly revised, the ongoing uncertainty hangs like a dark cloud on the horizon.

Revised draft QM regulations will also be released in 2012. These regulations focus on a borrower’s ability to repay a mortgage and contain provisions that include community association related expenses. On the positive side, QM will require that a lender qualify a borrower not just on the mortgage amount, but also on other mandatory fees like association assessments. This should help reduce assessment delinquencies. On the downside, QM requirements may also take action on association transfer fees and require the inclusion of special assessments in the qualification calculation on the basis that the assessment will be in place for the life of the loan.

Finally, in response to CAI members’ ongoing pressure, FHA will be making additional changes to its condominium insurance guidelines. FHA has indicated that they will be issuing additional guidance to address issues with project certifications, transfer fees and management company fidelity bonding. This is good news for CAI members as FHA accounts for up to one-third of all condominium loans. On the downside, due to a pull back in bank lending and the insolvency of Fannie Mae and Freddie Mac, FHA has been forced to fill the vacuum in the mortgage market. This has stressed the agency and pushed its financial reserves to dangerously low levels. If the economy stumbles and FHA’s reserves tip into the red, the agency could need a congressional bailout. With the heated political climate super-charged by election year politics, any solvency issues with FHA would likely set of a firestorm that could sideline the critical lending role FHA is now playing.

There is one point we can be sure of among all this uncertainty and that is that CAI will be working to make sure that CAI members voices are heard in this debate.

As part of our ongoing Mortgage Matters Program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org.

  • Condominium Law Group, PLLC - General Counsel & Collection Services - Partners Ken Harer & Valerie Oman - Phone: (206) 633-1520 Website: www.condolaw.net
  • Barker Martin
  • Porter Construction Inc - Building With Integrity - www.porterci.com
  • Newman HOA CPA - Banner Ad
  • Rafel Law Group - Banner Ad
  • The Copeland Group - Banner Ad
  • HUB International NW - HOA And Condo Solutions - Web Ad

Search WSCAI


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Diamond Sponsors

  • CAU - Community Association Underwriters - Logo
  • Agynbyte - Logo
  • RW Anderson Services - Logo
  • SageWater - Logo
  • CIT - Community Association Banking - Logo
  • Newman HOA CPA - Audit & Tax - Logo
  • Columbia Bank - Logo
  • HUB International NW - Logo
  • Transblue - Logo
  • Association Reserves WA - Logo
  • Superior Cleaning & Restoration - A COIT Service Company - Logo
  • Rafel Law Group PLLC - Logo
  • ServPro Of Seattle NW - Logo

Chapter Magazine

Journal July-August 2022

Jul/Aug 2022 Issue

Journal Advertising Partners:

  • Newman HOA CPA Audit & Tax
  • CIT Group Inc. - Logo
  • Rafel Law Group PLLC - Logo
  • The Copeland Group - Logo
  • Bell-Anderson & Associates - Logo
  • Community Association Underwriters - Logo
  • Ruff Construction - logo
  • Charter Construction - Logo
  • Popular Association Banking
  • SSI Construction
  • Sagewater
  • RW Anderson Services - Logo
  • Pacific Engineering Technologies, Inc - Logo

  • Pacific Western Bank - Small Ad
  • Association Reserves of Washington - Ad