Wells Fargo Bank, National Association et al v. City of Richmond, California et al

Filing 51

Request for Judicial Notice re 50 MOTION for Leave to File Memorandum of Law as Amici Curiae filed byAmerican Bankers Association, California Bankers Association, California Credit Union League, California Mortgage Bankers Association. (Related document(s) 50 ) (Hall, Paul) (Filed on 8/29/2013)

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PAUL J. HALL (State Bar No.66085)
[e-mail]
ISABELLE L. ORD (State Bar No. 198224)
[e-mail]
MATTHEW COVINGTON (State Bar No. 154429)
[e-mail]
DLA PIPER LLP(US)
555 Mission Street, Suite 2400
San Francisco, CA 94105-2933
Tel: [phone]
Fax: [phone]

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Attorneys for Amici Curiae
California Bankers Association,
American Bankers Association,
California Mortgage Bankers Association,
and California Credit Union League

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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN FRANCISCO DIVISION
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WELLS FARGO BANK,NATIONAL
ASSOCIATION,as Trustee, et al.,

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Plaintiffs,
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v.
17.
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CITY OF RICHMOND, CALIFORNIA, a
municipality; and MORTGAGE
RESOLUTION PARTNERS,L.L.C.,

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Defendants.

CASE NO. CV-13-03663-CRB
REQUEST FOR JUDICIAL NOTICE IN
SUPPORT OF BRIEF OF AMICI CURIAE
CALIFORNIA BANKERS
ASSOCIATION,AMERICAN BANKERS
ASSOCIATION,CALIFORNIA
MORTGAGE BANKERS
ASSOCIATION,AND CALIFORNIA
CREDIT UNION LEAGUE IN SUPPORT
OF PLAINTIFFS' MOTION FOR A
PRELIMINARY INJUNCTION

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Date:
Time:
Judge:

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September 13, 2013
10:00 a.m.
Hon. Charles R. Breyer

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Amici Curiae, the California Bankers Association, American Bankers Association,
California Mortgage Bankers Association, and California Credit Union League, hereby
respectfully request that the Court take judicial notice of the following documents in support of
Plaintiffs' Motion for a Preliminary Injunction pursuant to Federal Rule of Evidence 201 ("Rule
201")and 44 U.S.C. § 1507:

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DLA PIPER LLP (US)
SAN FRANCISCO

WEST\2419023 I 5.1

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF AMICUS BRIEF
CASE NO. CV-13-03663-CRB

1

1.

Notice of Federal Housing Finance Agency, published August 9, 2012, Federal

2

Register, Vol. 77, No. 154, p. 47652, a true and correct copy of which is attached hereto as

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Exhibit 1;

4

2.

Federal Housing Finance Agency General Counsel Memorandum,"Summary of

5

Comments and Additional Analysis Regarding Input on Use of Eminent Domain to Restructure

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Mortgages," published August 7, 2013, available at: http://www.fhfa.gov/webfiles/25418/

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GCMemorandumEminentDomain.pdf, a true and correct copy of which is attached hereto as

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Exhibit 2; and

9

3.

August 12, 2013 letter from U.S. Department of Housing and Urban Development

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Acting Assistant Secretary for Congressional and Intergovernmental Relations Elliot M.

11

Mincberg to Congressmen Ed Royce, Gary G. Miller, and John Campbell regarding "the potential

12

use of eminent domain to refinance underwater mortgages, available at

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http://online.wsj.com/public/resources/documents/08122013HUDEminentDomainLtrtoCADelega

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tion.pdf, a true and correct copy of which is attached hereto as Exhibit 3.

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Under Rule 201, the Court"may judicially notice a fact that is not subject to reasonable

16

dispute because it:(1)is generally known within the trial court's territorial jurisdiction; or(2)can

17

be accurately and readily determined from sources whose accuracy cannot reasonably be

18

questioned." Pursuant to this Rule, courts routinely grant requests for judicial notice of

19

information promulgated by federal agencies. See, e.g., Allen v. United Fin. Mortgage Corp., 660

20

F. Supp. 2d 1089, 1093-94(N.D. Cal. 2009)("[T]he Court grants Defendants' RJN because the

21

[noticed information] is available online, from the FDIC's web site."); see also New Mexico ex

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rel. Richardson v. BLM,565 F.3d 683, 702 n. 22(10th Cir.2009)(taking judicial notice of data on

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web sites offederal agencies); Louis v, McCormick & Schmick Rest. Corp.,460 F. Supp. 2d 1153,

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1156(C.D. Cal. 2006)(taking notice of"various opinion letters issued by federal and state

25

regulatory agencies"). In addition,"federal courts are required to take judicial notice ofthe

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Federal Register." Biodiversity Legal Found. v. Badgley, 309 F.3d 1166, 1179(9th Cir. 2002);

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see also 44 U.S.C. § 1507("The contents of the Federal Register shall be judicially noticed.").

28

Because the Amici Curiae request judicial notice ofinformation in the Federal Register

-1-

DLA PIPER LLP (US)
SAN FRANCISCO

WEST\241902315.1

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF AMICUS BRIEF
CASE NO. CV-I3-03663-CRB

1

and information created by federal agencies, and because none ofthis information is subject to

2

reasonable dispute, the request for judicial notice should be granted and the information

3

considered in connection with the brief of the Amici Curiae.

4
Respectfully submitted,

5
6

DATED: August 29, 2013
DLA PIPER LLP (U.S.)

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By:
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10
11
12

/s/ Paul J. Hall
PAUL J. HALL
ISABELLE L. ORD
MATTHEW COVINGTON
Attorneys for Amici Curiae
CALIFORNIA BANKERS
ASSOCIATION, AMERICAN BANKERS
ASSOCIATION,CALIFORNIA
MORTGAGE BANKERS ASSOCIATION,
AND CALIFORNIA CREDIT UNION
LEAGUE

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-2-

DLA PIPER LLP (US)
SAN FRANCISCO

WEST\24I 902315.1

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF AMICUS BRIEF
CASE NO. CV-13-03663-CRB

1
2
3
4
5
6

PAUL J. HALL (State Bar No.66085)
[e-mail]
ISABELLE L. ORD (State Bar No. 198224)
[e-mail]
MATTHEW COVINGTON (State Bar No. 154429)
[e-mail]
DLA PIPER LLP(US)
555 Mission Street, Suite 2400
San Francisco, CA 94105-2933
Tel: [phone]
Fax: [phone]

7
8
9

Attorneys for Amici Curiae
California Bankers Association,
American Bankers Association,
California Mortgage Bankers Association,
and California Credit Union League

10
UNITED STATES DISTRICT COURT
11
NORTHERN DISTRICT OF CALIFORNIA
12
SAN FRANCISCO DIVISION
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14

WELLS FARGO BANK,NATIONAL
ASSOCIATION,as Trustee, et al.,

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Plaintiffs;
16
v.
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CITY OF RICHMOND,CALIFORNIA, a
municipality; and MORTGAGE
RESOLUTION PARTNERS,L.L.C.,

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Defendants.

CASE NO. CV-13-03663-CRB
REQUEST FOR JUDICIAL NOTICE IN
SUPPORT OF BRIEF OF AMICI CURIAE
CALIFORNIA BANKERS
ASSOCIATION,AMERICAN BANKERS
ASSOCIATION,CALIFORNIA
MORTGAGE BANKERS
ASSOCIATION,AND CALIFORNIA
CREDIT UNION LEAGUE IN SUPPORT
OF PLAINTIFFS' MOTION FOR A
PRELIMINARY INJUNCTION

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Date:
Time:
Judge:

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September 13, 2013
10:00 a.m.
Hon. Charles R. Breyer

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Amici Curiae, the California Bankers Association, American Bankers Association,
California Mortgage Bankers Association, and California Credit Union League, hereby
respectfully request that the Court take judicial notice ofthe following documents in support of
Plaintiffs' Motion for a Preliminary Injunction pursuant to Federal Rule of Evidence 201 ("Rule
201")and 44 U.S.C. § 1507:

28
DLA PIPER LLP (US)
SAN FRANCISCO

WEST\241902315.1

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF AMICUS BRIEF
CASE NO. CV-13-03663-CRB

1

1.

Notice of Federal Housing Finance Agency, published August 9, 2012,Federal

2

Register, Vol. 77, No. 154, p. 47652, a true and correct copy of which is attached hereto as

3

Exhibit 1;

4

2.

Federal Housing Finance Agency General Counsel Memorandum,"Summary of

5

Comments and Additional Analysis Regarding Input on Use ofEminent Domain to Restructure

6

Mortgages," published August 7,2013, available at: http://www.fhfa.gov/webfiles/25418/

7

GCMemorandurnEminentDomain.pdf, a true and correct copy of which is attached hereto as

8

Exhibit 2; and

9

3.

August 12, 2013 letter from U.S. Department of Housing and Urban Development

10

Acting Assistant Secretary for Congressional and Intergovernmental Relations Elliot M.

11

Mincberg to Congressmen Ed Royce, Gary G. Miller, and John Campbell regarding "the potential

12

use of eminent domain to refinance underwater mortgages, available at

13

http://online.wsj.com/publichesources/documents/08122013HUDErninentDomainT.trtoCADelega

14

tion.pdf, a true and correct copy of which is attached hereto as Exhibit 3.

15

Under Rule 201, the Court"may judicially notice a fact that is not subject to reasonable

16

dispute because it:(1)is generally known within the trial court's territorial jurisdiction; or(2)can

17

be accurately and readily determined from sources whose accuracy cannot reasonably be

18

questioned." Pursuant to this Rule, courts routinely grant requests for judicial notice of

19

information promulgated by federal agencies. See, e.g., Allen v. United Fin. Mortgage Corp.,660

20

F. Supp. 2d 1089, 1093-94(N.D. Cal. 2009)("[T]he Court grants Defendants' RJN because the

21

[noticed infoimation] is available online,from the FDIC's web site."); see also New Mexico ex

22

rel. Richardson v. BLM,565 F.3d 683, 702 n. 22(10th Cir.2009)(taking judicial notice of data on

23

web sites offederal agencies); Louis v, McCormick & Schmick Rest. Corp.,460 F. Supp. 2d 1153,

24

1156(C.D. Cal. 2006)(taking notice of"various opinion letters issued by federal and state

25

regulatory agencies"). In addition,"federal courts are required to take judicial notice ofthe

26

Federal Register." Biodiversity Legal Found. v. Badgley,309 F.3d 1166, 1179(9th Cir. 2002);

27

see also 44 U.S.C. § 1507("The contents ofthe Federal Register shall be judicially noticed.").

28

Because the Amici Curiae request judicial notice of information in the Federal Register
-1-

DLA PIPER LLP (US)
SAN FRANCISCO

WEST\241902315.1

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF AMICUS BRIEF
CASE NO. CV-13-03663-CRB

1

and information created by federal agencies, and because none ofthis information is subject to

2

reasonable dispute, the request for judicial notice should be granted and the information

3

considered in connection with the brief ofthe Amici Curiae.

4
Respectfully submitted,

5
6

DATED: August 29,2013
DLA PIPER LLP (U.S.)

7
8
By:
9
10
11
12
13

/s/ Paul J. Hall
PAUL J. HALL
ISABELLE L. ORD
MATTHEW COVINGTON
Attorneys for Amici Curiae
CALIFORNIA BANKERS
ASSOCIATION, AMERICAN BANKERS
ASSOCIATION,CALIFORNIA
MORTGAGE BANKERS ASSOCIATION,
AND CALIFORNIA CREDIT UNION
LEAGUE

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DLA PIPER LLP(US)
SAN FRANCISCO

WEST\241902315.1

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF AMICUS BRIEF
CASE NO. CV-13-03663-CRB

''''''

070.

47652

Federal Register/Vol. 77, No. 154/ Thursday, August 9, 2012 /Notices

RECORD ACCESS PROCEDURES:

Direct inquiries as to whether this
system contains a record pertaining to
an individual to the Privacy Act Officer
either electronically, or by regular mail,
or facsimile. Submit electronic requests
at https://publicaccesslink.fhfa.gov/
palMain.aspx. The regular mail address
is: Privacy Act Officer, Federal Housing
Finance Agency, 400 7th Street SW.,
Washington, DC 20024. The facsimile
number is: 202-649-1073. For the
quickest possible handling, mark your
electronic submission, letter, or
facsimile and the subject line, envelope,
or facsimile cover sheet "Privacy Act
Request" in accordance with the
procedures set forth in 12 CFR part
1204.
CONTESTING RECORD PROCEDURES:

Direct inquiries as to whether this
system contains a record pertaining to
an individual to the Privacy Act Officer
either electronically, or by regular mail,
or facsimile. Submit electronic requests
at https://publicaccesslink.fhfa.gov/
palMain.aspx. The regular mail address
is: Privacy Act Officer, Federal Housing
Finance Agency, 400 7th Street SW.,
Washington, DC 20024. The facsimile
number is: 202-649-1073. For the
quickest possible handling, mark your
electronic submission, letter, or
facsimile and the subject line, envelope,
or facsimile cover sheet "Privacy Act
Request" in accordance with the
procedures set forth in 12 CFR part

Mortgage Association (Fannie Mae), the
Federal Home Loan Mortgage
Corporation (Freddie Mac), and the
Federal Home Loan Banks (Banks).
Fannie Mae and Freddie Mac (the
Enterprises) are operating in
conservatorships with a core mission of
supporting the housing market. FHFA's
obligations, as conservator, are to
preserve and conserve assets of the
Enterprises and to minimize costs to
taxpayers. The Enterprises purchase a
large portion of the mortgages originated
in the United States and they hold
private label mortgage backed securities
containing pools of non-Enterprise
loans. The Banks likewise have
important holdings of such securities. In
addition, the Banks accept collateral
that consists of mortgages of member
financial firms pledged in exchange for
advances of funds.

FHFA Concerns
FHFA has significant concerns about
the use of eminent domain to revise
existing financial contracts and the
alteration of the value of Enterprise or
Bank securities holdings. In the case of
the Enterprises, resulting losses from
such a program would represent a cost
ultimately borne by taxpayers. At the
same time, FHFA 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.
1204.
FHFA has determined that action may
RECORD SOURCE CATEGORIES:
be necessary on its part as conservator
Information is provided by
for the Enterprises and as regulator for
the Banks to avoid a risk to safe and
individuals accessing or using FHFA
telecommunication resources or
sound operations and to avoid taxpayer
expense.
devices.
Among questions raised regarding the
EXEMPTIONS CLAIMED FOR THE SYSTEM:
proposed use of eminent domain are the
None.
constitutionality of such use; the
application of federal and state
Dated: August 1, 2012.
consumer protection laws; the effects on
Edward J. DeMarco,
holders of existing securities; the impact
Acting Director,Federal Housing Finance
on millions of negotiated and
Agency.
performing mortgage contracts; the role
[FR Doc. 2012-19572 Filed 8-8-12; 8:45 am]
of courts in administering or overseeing
BILLING CODE 8070-01-P
such a program, including available
judicial resources; fees and costs
attendant to such programs; and, in
FEDERAL HOUSING FINANCE
particular, critical issues surrounding
AGENCY
the valuation by local governments of
[No. 2012—N-11]
complex contractual arrangements that
are traded in national and international
Use of Eminent Domain To Restructure
markets.
Performing Loans
Input
AGENCY: Federal Housing Finance
FHFA will accept input from any
Agency.
person with views on this subject
ACTION: Notice; input accepted.
through its Office of General Counsel
The Federal Housing Finance Agency (OGC), no later than September 7, 2012,
as the agency moves forward with its
(FHFA) oversees the Federal National

deliberations on appropriate action.
Communications may be addressed to
FHFA OGC,400 Seventh Street SW.,
Eighth Floor, Washington, DC 20024, or
emailed to FHFA OGC at
[e-mail].
Communications to FHFA may be made
public.
Dated: August 6, 2012.
Richard Hornsby,

Chief Operating Officer, Federal Housing
Finance Agency.
[FR Doc. 2012-19566 Filed 8-8-12; 8:45 am]
BILLING CODE 8070-01-P

DEPARTMENT OF HEALTH AND
HUMAN SERVICES
FOod and Drug Administration
[Docket No. FDA-2012—N-0001]

Second Annual Food and Drug
Administration Health Professional
Organizations Conference
AGENCY: Food and Drug Administration,
HHS.
ACTION: Notice of conference.

The Food and Drug Administration
(FDA)is announcing a conference for
representatives of health professional
organizations. Topics on the agenda
include an update on the FDA Safety
and Innovation Act(Pub. L. 112-144)
and an overview of FDA's Network of
Experts (public/private partnerships).
The afternoon will consist of
interactive breakout sessions facilitated
by FDA staff from various Centers and
Offices, including a networking session
to meet FDA personnel.
DATES: Date and Time:The conference
will be held on October 4, 2012,from
9 a.m. to 4 p.m.
Location:The conference will be held
at FDA White Oak Campus, 10903 New
Hampshire Ave., Bldg. 31 Conference
Center, the Great Room (rm. 1503),
Silver Spring, MD 20993.
Contact Person:Janelle Derbis, Office
of Special Health Issues, Food and Drug
Administration, 10903 New Hampshire
Ave., Silver Spring, MD 20993, 301796-8460, email:
[e-mail].
Registration:Register at: https://
www.surveymonkey.com/s/
FDAConference. Please include the
name and title of the person attending,
the name of the organization, and email
address. There is no registration fee for
this conference. Early registration is
suggested because space is limited.
SUPPLEMENTARY INFORMATION: The aim of
the conference is to further the public
health mission of FDA through training,

Federal Housmg Finance Agency
Constitution Center
400 7th Street, S.W.
Washington, D.C.20024
Telephone:[phone]
Facsimile:[phone]
www.fhfa.gov

General Counsel Memorandum
Summary of Comments and Additional Analysis Regarding Input on
Use ofEminent Domain to Restructure Mortgages
August 7,2013
In response to suggestions that local governments employ eminent domain authority to restructure
mortgage obligations, the Federal Housing Finance Agency(FHFA)published a Notice in the
FederalRegister entitled "Use of Eminent Domain to Restructure Performing Loans," 77 Federal
Register 47652(August 9,2012).
At that time,FHFA indicated it had significant concerns about the use ofeminent domain to revise
existing financial contracts and the resulting alteration of value of securities holdings of Fannie Mae
and Freddie Mac and the twelve Federal Home Loan Banks. Additionally, FHFA noted it would
review certain questions regarding such usage of eminent domain and would accept public input.
This memorandum provides a review ofthe topic, input received and implications for FHFA.1
General
A proposal for local government use ofeminent domain authority to restructure mortgages has
generated much discussion both from the points oflegality of such an action to the implementation
of such a proposal and its impact on institutions under Federal Housing Finance Agency oversight
and the broad securities market that supports housing finance.
Input received came from individuals in government, private sector financial institutions,labor
unions, businesses and academics as well as interest groups for homeowners and from businesses
involved in financial markets. Seventy-five submissions were made,almost evenly divided between
supporters and opponents? The general thrust ofinput from the public fell into two categories—
those supporting the use of eminent domain for restructuring loans as falling within the purview of
localities and as an effective device to assist homeowners and those opposing such use ofeminent
domain as violating law, eroding the value of existing financial obligations and de-stabilizing the
market that supports housing finance.

This paper provides a summary ofeminent domain issues,including legal issues, but is not intended to serve as a
formal legal opinion.
2

Submssions may be found at
i
bltp;iivirmsv.`____th4a,gomiDefaiiltasp.

-7119&I.11 'umber= &11,541.).:=22.659,6441/41112012&Sortliy=#21550.

Page 2

Supporters advocated that,if securities have lost value, then the proper and fair valuation of
mortgages backing the securities through eminent domain results in no loss to a securities investor,
but permits a restructuring of a loan that would benefit homeowners and stabilise housing values.
Supporters advocated that FHFA had no role to play in a local or state action, as many local actions
affect housing markets and are entrusted to state and local officials by law. These supporters
advanced that assisting underwater borrowers who are paying their mortgage obligations justifies the
use ofeminent domain to adjust their mortgages to a more affordable obligation which they could
not otherwise receive.3 Several supporters argued that use ofeminent domain would be a form of
principal forgiveness that would benefit homeowners.
Opponents advocated numerous legal problems with the proposed use of eminent domain;some
centered on the proper use ofeminent domain itself and others on attendant constitutional issues
related to taking of property or sanctity of contract. Opponents noted strong reaction offinancial
markets that support home financing in terms of upsetting existing contracts but as well creating an
unworkable situation for providing and pricing capital based on the uncertainty of such a use of
eminent domain.
Eminent Domain
Eminent domain, also referred to in operation as a condemnation,involves a state action to seize
property founded on a public purpose and for which fair value is paid to the person or entity whose
property is seized. Eminent domain authority resides with the states; states enact laws permitting
local governments to exercise eminent domain and local laws may vary on conditions, terms and
methods for acting on this authority so long as the ordinances do not permit conduct contrary to
enabling state law. At the same time, constitutional provisions relating to the sanctity of contracts,
due process,"takings" prohibitions and interstate commerce provide a nexus for federal review.
The Supreme Courtin 2005 upheld an eminent domain transfer ofreal property from one private
party to another; many states reacted to this by enacting laws that denied local governments the
authority to undertake such transfers,in order to focus the exercise of eminent domain more clearly
on a public purpose. While eminent domain has been viewed as predominately related to taking of
4
3

Ifaccepted that eminent domain may be employed to seize performing loans,then it might be argued that eminent
domain could be employed to seize non-performing loans as well.

4

Kelo v. City ofNew London,545 U.S.469(2005). In Kelo, the transfer ofreal property, effected by the use ofeminent
domain from one private party to another, was supported by the Court as part of a comprehensive plan by the city
similar to urban planning and development for multiple properties. Here,the taking was of real estate, not contract
rights, and involved a wide ranging plan for redeveloping real property. Further the Court noted that a public purpose
must exist even if the taking included just compensation to the property owner. In reaction to Kelo, the enactment of the
Housing and Economic Recovery Actin 2008,PL 110-289 (2008), provided congressional views regarding the use of
eminent domain relating to use offunds for certain affordable housing programs. At section 1337(g)(12 USC 4567
(g)),
Congress indicated that no funds allocated to affordable homing programs at the Department of Housing and Urban
Development or the Treasury Department could be used "in conjunction with property taken by eminent domain,unless
eminent domain is employed only for a public use, except that for purposes ofthis section, public use shall not be
construed to include economic development that primarily benefits any private entity."

Page 3

real property, such as to support road, airport or infrastructure construction by a locality, it has been
employed in very limited circumstances with intangible property. In some cases, the intangible
property, such as goodwill, has been compensated attendant to a taking of business's real ptopeity.
On balance, use ofeminent domain for addressing contractual rights or intangible rights has been
rare.
Supporters for a use ofeminent domain to restructure performing mortgage loans indicate that it is
a right oflocalities to employ this approach,that such a program helps investors by avoiding
strategic defaults by performing, but underwater borrowers, that the program would benefit local
communities by avoiding defaults and that states have inherent rights to act without federal
intervention. To date, no community has implemented fully such a program and supporters have
indicated that they would modify their proposals to address some concerns that have been raised.
Issues for the Federal Housing Finance Agency
From the perspective of the Federal Housing Finance Agency,acting as Conservator for Fannie Mae
and Freddie Mac (Enterprises) and regulator for the Federal Home Loan Banks,the use of eminent
domain for altering contractual arrangements raises several core issues— the conflict offederal and
state interests; assuming that a legitimate state interest may exist, the legality of such a plan;
operation ofsuch a plan and its impact on mortgage markets; safety and soundness concerns;
valuation matters; and,creation oflosses to the conservatorships.
FederalInterest
Where a federal interest exists and is established, that interest would preempt a conflicting state
interest. Here,the interest of the Conservator to preserve and conserve assets and to operate the
Enterprises in conservatorships would be superior to the interest of a locality to alter the tetras of a
contract held by the Enterprises either through their ownership of a mortgage-backed security, their
guarantee of a pool of mortgages or their ownership of a mortgage held in portfolio. As regulator
for the Home Loan Banks,entrusted with safety and soundness responsibilities by federal law,
concern would exist for any de-stabilization ofinvestments held by the Banks as well as for values
for collateral pledged to secure advances.
For the Enterprises, only the Conservator is empowered to alter contracts and state action to affect
the assets held by the Enterprises in conservatorships would run contrary to the Housing and
Economic Recovery Act provisions on conservatorship that bar actions by federal or state actors
that would interfere with conservatorship operations.5
Harm to a conservatorship, through losses to the Enterprises, would result from a third party acting
under eminent domain to remove a performing loan from a pool, thereby reducing the value of the

5

12 USC 4617 (a)(7) Initial reports ofeminent domain programs purported to exclude Fannie Mae and Freddie Mac
mortgages in any securities flout which loans are removed for the time being, possibly to avoid statutory prohibitions.
As noted this does not address investments in securities held by the Enterprises. Further, eminent domain may address
not only mortgages in securities, but as well could be employed to address any mortgage loan including those held in
lender portfolios.

Page 4

asset ofthe Enterprise and the loss of a stream ofincome. As well, any program that affects loans
held in securities might be argued to be available to modify loans held in portfolio by a regulated
entity, which also raises concerns. It may be noted that the harm involved in eminent domain
takings includes not only the removal of a performing loan through a discounted acquisition price,
but also the extraction of value by a locality or its designee for administrative or other expenses.
Finally, the estimation of fair value is frequently the subject of significant litigation and involves
complex .matters including benchmarks and value of a performing asset. Involvement in such
litigation and other legal costs flirther increase losses for an Enterprise operating in conservatorship
or a Home Loan Bank.
Lega1iy of Use ofEminent Domain to Restructure Mortgage Contracts
Assuming that a valid state interest exists, one that is not preempted by federal interests, the legality
of such use ofeminent domain remains in doubt. Indeed, supporters of an eminent domain
program anticipate and have communicated that they anticipate significant legal action regarding all
aspects ofthe use of eminent domain to restructure contracts in existing pools of mortgages.
Legal questions fall into several categories.
First,it is questioned whether the exercise of eminent domain for intangible assets fits within state
laws authorizing eminent domain by localities. This may not exist in certain states and present a
conflict for a locality.
Second,it is questioned whether the exercise of eminent domain in such a manner as discussed by
certain localities violates certain constitutional provisions. These questions center on an improper
"taking" under the Fifth Amendment as to public purpose as noted above; an improper taking as
the intangible asset is performing and creates no threat to the community; a taking of a performing
asset when no assurance exists that the asset would cease performing (a predictive action); a
violation of the Contracts Clause of the Constitution that prohibits impairing the obligations of a
contract, including debt contracts such as a mortgage; and,finally, since mortgage backed securities
are traded domestically and internationally, the action of a state could be seen as a violation ofthe
Commerce Clause which requires states not to interfere with interstate commerce except where
there is a legitimate state interest, the state has chosen the least burdensome means of promoting
that interest and the interest outweighs the burden on interstate commerce
Third, employment of eminent domain in the area of housing contracts for underwater borrowers
could target only certain areas of a community and lead to questions regarding redlining and fair
housing laws.
Fourth, challenges may exist to a local jurisdiction's action operating under state laws.

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Operation ofSuch a Plan
There has been much discussion ofthe operation and itnpact of eminent domain for revising
mortgage contracts and impact on mortgage markets. Among core concerns have been—
First, such a program will encounter difficulty in determining values for performing loans as there
are too many variables either with static or dynamic modeling to accurately measure the full value of
a mortgage,including its stream ofincome.
Second, even if an economic valuation could be approximated on the mortgage contract,such a
program cannot operate without extracting value to loralities and consulting firms. In short, fees to
localities and consulting firms would be part of any analysis ofthe ultimate costs of the program to
the investor or lender.
Third, such a program would create ftmdamental uncertainties With over 60,000 municipalities, the
implementation would be anticipated as being very uneven and problematic for national lending
programs. Which loans are selected, under what criteria and how valuations would be undertaken,
all would generate uncertainties with multiple approaches and multiple legal actions.
Fourth,such a program does not provide a national uniform structure as does HAMP or HARP,but
rather creates a program implemented on an ad hoc basis, presenting different tisk factors in
different markets. No supervision or oversight is envisioned in local eminent domain decisions,
absent action by a state regulator or by a court.
Fifth, such a program could be counter-productive and difficult to assess. In a market where home
values are stabilizing and,in some cases, moving upwards, the need for such a program (even if it
were merited) appears to diminish, the effect ofsuch a program could be to depress artificially the
value of homes and lower the tax base for communities and chill lending to support a rising market.
The uncertainties of an eminent domain loan restructuring program as well as the predictable results
lead to a concern for market reaction adverse to housing finance
Finally, adverse reactions to such a program could dramatically alter the business model for lending.
Ifinvestors and lenders see increased uncertainty, two routine results would be anticipated—
limitation on lending and on investing in certain markets and higher costs to address uncertainties.
SO*and Soundness Concerns and Conservatorship Interests
There are significant safety and soundness concerns, some aligned with the market effects noted
above.
First, no program oversight exists. Local programs would be administered by a mixture oflocal
governments,external consulting firms and the judiciary. This would produce uncertainty and
unreliability for a system that today relies on contracts between parties with relatively clear federal
and state laws. Use of eminent domain for this purpose would represent a move to a new form of
action, without established methodologies or predictable dispute resolution vehicles. Thus, this use

Page 6

of eminent domain would be ftmdamentally different from its current usage for condemnation of
homes and other real properties.
Second,liability for program deficiencies remains uncertain. Consulting firms operating as limited
liability companies and localities attempting to shield themselves from liability through special
purpose government structures provide no clarity as to who would be responsible and with what
resources to meet legal costs and potential damages from law violation and related litigation.
Third, operation ofsuch a prograni to select a group ofloans for a purported benefit would present
potential claims that do not exist with current programs for restructuring loans by the contracting
parties themselves. Existing programs for loan modifications create eligibility standards for
modifications that follow initial borrower evaluations, have modification guidelines and occur under
federal regulation or oversight. As noted above, use ofeminent domain has been challenged for
potential violations ofthe Fair Housing Act and,as a new device, could be subject to additional
charges of disrrimination or consumer protection violations.
Fourth, the value ofloans to all FHFA regulated entities would be called into question. Existing
mortgage portfolios, existing pledged collateral for advances,investments in private label securities
(PIS)and liability for securitized mortgage pools would all come under scrutiny and potential
valuation changes or downgrading.
Fifth, eminent domain for restructuring mortgages could run contrary to the conservatorships which
prohibit states from interfering with the operation. of FHFA. Pulling performing loans out ofPLS
6
by a state or state-authorized body could remove FHFA discretion to maintain the value ofPIS and
not to have investments under its control affected by state action.
Sixth, there is uncertain precedent with the extent of state action. When would such a program
stop— when individuals are 30%,20% or 10% underwater. Also, would such a program be
expanded to other types of mortgage obligations including modified loans, home equity loans and
other housing-related financings based on the determinations of a locality.

6

See County ofSonoma v. Federal Housing Finance Agency,710 F.3d 987 (9th Cir. 2013). Conservator direction to
Enterprises not to purchase mortgages encumbered by county loans issued as tax assessments upheld. The Circuit Court
noted,"A decision not to buy assets that FHFA deems risky is within its conservator power to 'carry on'the Enterprises'
business and to 'preserve and conserve the assets and property ofthe [Enterprises'? 12 U.S.C. y 4617(b)(2)(D)(ii)." As
well,the Court noted,"When FBFA decides not to purchase a class of mortgages that it believes pose excessive risk, it
is attempting to preserve and conserve the Enterprises' assets and property. Indeed, careful management ofits mortgage
purchase decisions appears to be the only way FHFA can avoid the financial problems which precipitated the
Enterprises' conservatorship. Although FHFA's powers as conservator are not limitless, the ability to decide which
mortgages to buy is an inherent component ofFHFA's charge to preserve and conserve the Enterprises' assets. See Leon
CnDr., 700 F.3d at 1279 ("It is fully within the responsibilities of a protective conservator, acting as a prudent business
manager,to decline to purchase a mortgage when its lien will be relegated to an inferior position for payment')."

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Valuation Concerns
All laws and court cases relating to eminent domain require a pa)went of"just compensation." This
turns on the valuation ofthe property and is frequently the crux oflegal dispute; such disputes can
be expensive,long lasting and produce a-"chill" on financial markets In the case of a performing
mortgage,the value of the mortgage is a mixture of the unpaid balance and the income stream from
that mortgage. Clearly, for an intangible asset, the value of the property is only a part of a
calculation; there is a great concern with the value ofthe contract, particularly a performing contract.
First, valuations must be made on a case-by-case basis for each property. Attempts to advocate a
pool-based approach do not work. Pulling an individual loan out of a pool requires analysis that is
undertaken today in HAMP about individual assets and ability to pay, along with other measures
that do not appear to exist for an eminent domain program. .An argument that Enterprise pool level
analytics for PLS loans and securities disclosures would suffice is misplaced; such reports are pool
level reports based on analytics that do involve some review ofindividual loans, but do not replace
in an eminent domain proceeding, the need for individual valuation, particularly where a loan is
performing. Nor can the GSE calculations be reverse engineered for an individual loan. Further,
the process might include a calculation oflikelihood to default, noted above as difficult if market
values are rising.
Second, what analysis is employed on valuation wader various local programs remains uncertain
both as to methods and as to expertise brought to bear.
Third, valuation itself could generate claims of discrimination and legal challenges as noted above.
Conclusion and Potential Actions
On balance, after conducting a review oflaw and markets and considering public input, there is a
rational basis to conclude that the use of eminent domain by localities to restructure loans for
borrowers that ate "underwater" on their mortgages presents a dear threat to the safe and sound
operations of Fannie Mae,Freddie Mac and the Federal Home Loan Banks as provided in federal
law, would run contrary to the goals set forth by Congress for the operation of conservatorships by
FHFA and presents a direct relationship to FHFA's responsibility for overseeing entities that deal in
"federally related mortgage loan[s]" as defined at 12 USC 2602.
FHFA has a broad range of authorities both as a regulator and as a conservator that could be
deployed to respond to the findings made here regarding the risks posed by eminent domain. In
making a determination on an appropriate course, the Agency would consider carefully and fully the
context of an action or planned action by a locality and the impact on FHFA's regulated entities.

Alfred M.Pollard
General Counsel

EXHIBIT 3

U.S.DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON,DC 20410-1000
ASSISTANT SECRETARY FOR CONGRESSIONAL
AND INTERGOVERNMENTAL RELATIONS

AUG 1 2 2013

The Honorable Ed Royce
U.S. House of Representatives
Washington,DC 20515
The Honorable Gary G. Miller
U.S. House of Representatives
Washington, DC 20515
The Honorable John Campbell
U.S. House of Representatives
Washington,DC 20515

Dear Representatives Royce, Miller and Campbell:
I am writing in response to your letter to Department of Housing and Urban Development
(HUD)Secretary Shaun Donovan of June 11, 2013,regarding the potential use of eminent domain
to refinance underwater mortgages, which is currently being considered by a number of
municipalities around the country. HUD shares your goals of ensuring the continued recovery of
the housing market, as well as your concerns about events that could harm the recovery and the
growth of private capital in the mortgage market.
As Deputy Assistant Secretary for Single Family Housing Charles Coulter testified during
the hearing on May 16, 2013 before the Subcommittee on Housing and Insurance of the House
Financial Services Committee. HUD is concerned about the developments you cite in your letter.
At the same time, HUD recognizes that eminent domain is an inherent and often indispensable tool
for local governments to accomplish important public purposes. Notions of using eminent domain
to condemn and refinance mortgages, however,raise a number of potential and novel issues that
state and local governments and the courts will have to consider and resolve. Municipalities would
have to decide whether pursuing such a policy best serves their residents. They would also have to
develop and execute a condemnation and compensation plan that will survive legal scrutiny under
both federal and state laws and legal precedent, as well as political scrutiny from their citizens and
other stakeholders.
While some municipalities have approved such an idea in theory and have taken preliminary
steps to pursue it, others have already rejected it. For instance, the municipal governments of San
Bernardino, California; Salinas, California; and Brockton, Massachusetts, among others, have all
considered and ultimately rejected such proposals. However,on July 31, 2013, Richmond,
California took the step of mailing letters to a number of trustees and servicers with offers for both
performing and non-performing securitized mortgages. The letter set a response deadline of
August 13, 2013. At least three of the recipients, all trustees for some of the trusts holding some of
the identified mortgage loans, responded on August 7, 2013, by filing two court complaints seeking
preliminary injunctive relief.

www.hud.gov

espanoLhud.gov

HUD recognizes the serious concerns raised by these legal actions against Richmond,
California and the private entities working with the city. Pending legal developments and possible
further execution of the plans in question, HUD does not know whether any new mortgage which
might be created would qualify for insurance by the Federal Housing Administration(FHA).
Moreover, until such plans produce concrete, analyzable results, HUD will not know what if any
effects they will have on FHA and the mortgage market. Any guidance from FHA on this issue
should take into account these factors and should be narrowly tailored to avoid any unintended
consequences. Therefore, we believe it is most prudent to consider what if any programmatic
response from FHA is appropriate when more information about such possible use of eminent
domain becomes available.
HUD shares the concerns raised in your letter and is continuing to monitor closely events on
this issue as they unfold among state and local. governments. If necessary, HUD will issue
informational guidance to FHA approved lending institutions as appropriate. Thank you for your
interest in HUD's programs, and we look forward to our continued work together to further
strengthen the housing recovery.
Sincerely,

Elliot M. Mincberg
Acting Assistant Secre
for Congressional
and Intergovernmental Relations