Should state and municipal governments use their eminent domain authority to purchase and restructure underwater mortgages?

The idea’s already been considered and rejected in San Bernardino County, Calif., where the legal fracas that would ensue was a deterrent. But the “novel solution” is revisited in a new research paper published by the Federal Reserve Bank of New York.

Bloomberg reports that Guggenheim Securities LLC analyst Jaret Seiberg worries that while the idea hasn’t caught on, the paper “will change that equation even though (it) only reflects the views of the author and not of the New York Fed.”

In April, Reuters reported that San Francisco-based Mortgage Resolution Partners (MRP) has signed advisory agreements with five California towns, giving MRP the right to begin negotiating with loan servicers for principal reductions on mortgages that were bundled up into mortgage-backed securities. Source:

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