The U.S. Department of Housing and Urban Development told Congress it could not  say if the Federal Housing Administration would insure new mortgages in communities including Richmond, California that propose to seize home loans through eminent domain. “Pending legal developments and possible further execution of the plans in question, HUD does not know whether any new mortgages which might be created would qualify for insurance by the Federal Housing Administration,” Acting Assistant Secretary Elliot Mincberg wrote in an Aug. 12 letter responding to questions from members of Congress.

“There is a rational basis to conclude that the use of eminent domain by localities to restructure loans for borrowers that are ‘underwater’ on their mortgages presents a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks as provided in federal law,” Pollard wrote. Fannie Mae and Freddie Mac last week joined investors authorizing a lawsuit to stop Richmond from seizing loans.