A New Twist on a Controversial Issue . . .

It hasn’t been that long since eminent domain was a topic of conversation in households across the United States. Just after the turn of the century, homeowners in New London, Connecticut tried to stop the city from invoking its powers of eminent domain to acquire their homes and use the land for new development that was intended to boost the local economy. In 2005, in a five to four decision, the Supreme Court determined that the distressed city could acquire the properties.

According to a 2009 Federal Reserve article, the response to the ruling was immediate and intense. The U.S. House of Representatives passed a resolution denouncing the court, as well as a bill requiring federal development funds be withheld from states and political subdivisions that used eminent domain in specific ways. In addition, a majority of states took action to limit the reach of eminent domain.

Today, eminent domain is making headlines again. In a strange twist, some cities are considering invoking eminent domain to acquire and reduce mortgage debt, keeping people in their homes as a means of boosting the local economy. According to economists at the New York Federal Reserve:

“With more than 11 million homes still “underwater,” the mortgage debt overhang caused by the housing bubble remains an impediment to economic growth and a burden on communities across the country. One possible solution to this problem is for state and municipal governments to use their eminent domain authority to purchase and restructure underwater mortgages.”

This time, banks and investors (including Freddie Mac, a government-backed company that is one of the biggest buyers of private home loan bonds) are protesting. They argue invoking eminent domain in this way could create losses for bond holders, as well as make lending institutions more reluctant to lend if the loans could be seized.

Will this thorny issue continue to ripen or will it die on the vine? It may depend on how fast home prices increase and how quickly the housing market recovers.

Weekly Focus – Think About It

“Rarely do we find men who willingly engage in hard, solid thinking. There is an almost universal quest for easy answers and half-baked solutions. Nothing pains some people more than having to think.”

Martin Luther King, Jr., clergyman and leader of the Civil Rights Movement

Best regards,

Jonathan K. DeYoe

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Sources:

http://www.reuters.com/article/2013/08/09/us-markets-global-idUSBRE96S00E20130809

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http://www.reuters.com/article/2013/08/07/us-usa-freddiemac-richmond-idUSBRE9760WT20130807

http://www.brainyquote.com/quotes/keywords/thinking.html