Matthew Goldstein and Jennifer Ablan

The idea of using eminent domain to help out homeowners who are underwater on their mortgages isn’t necessarily a new one.

Two years ago, a group of congressional leaders led by Rep. Brad Miller of North Carolina wrote to Treasury Secretary Tim Geithner recommending that the federal government consider buying underwater mortgages to stem the flood of home foreclosures. The Democratic congressman got two dozen of his colleagues to sign onto the proposal, which Geithner gave a pretty cool response to.

In a May 7, 2010 letter to the U.S. lawmakers, Geithner said the proposal had too many hurdles to be seriously considered. The Treasury secretary said eminent domain is a “complex and lengthy” proceeding. And he worried about the difficulty of  buying “mortgages out of the trusts and other securitization vehicles that own and control a substantial share of mortgage debt.”

But the biggest obstacle raised by Geithner was determining what would be fair value for taxpayers to pay for an underwater mortgage.

“If Treasury were to pay a a price higher than fair market value, taxpayers would be exposed to a high risk of loss and banks and investors would receive a windfall.”