Damage to contract law in general, and the fragile mortgage industry in particular would be horrendous and long-lasting
By John Hayward
Back when San Bernardino made headlines by considering the seizure of “underwater” mortgages under the expanded eminent domain powers ratified by the notorious Kelo decision at the Supreme Court, I had a feeling this bad idea would be going national.
The Wall Street Journal reported on Thursday that, indeed, “Cities from San Bernardino to Chicago are contemplating this land grab that would seize certain mortgages, write down their principal value, impose losses on the holders of those mortgage securities, and then hand them off to another private company to repackage at a profit.”
This is nothing less than theft. The government would be seizing property – in this case, financial property, rather than physical real estate – from its lawful owners, forcibly altering the value of the property according to political imperatives, and giving it to different private interests for their own profit. That’s precisely what Justice Sandra Day O’Connor warned would happen, in her dissent from the Kelo decision.
Fortunately, Fannie Mae and Freddie Mac regulatory honcho Edward DeMarco is alert to the danger, and the Journal praised his vigilance: