A top housing regulator is facing a lawsuit over its refusal to allow cities to pursue a controversial idea to help struggling homeowners.
The American Civil Liberties Union (ACLU) and the Center for Popular Democracy announced Thursday they were suing the Federal Housing Finance Agency (FHFA). Specifically, the groups are suing the regulator in an effort to obtain documents tied to the watchdog’s decision against supporting the use of eminent domain to seize underwater mortgages and substantially reduce their cost to homeowners.
That idea, which has gained traction in some cities nationwide but is not yet fully implemented anywhere, has been met with intense pushback from the financial sector. Industry groups contend that such a plan would upend the mortgage market and unnecessarily subject investors to substantial losses.
Now, the two groups have filed a lawsuit under the Freedom of Information Act (FOIA), demanding the FHFA hand over any communications with the financial industry pertaining to that decision.
"The FHFA has taken an aggressive stance on this issue in a way that has harmed minority communities. The public deserves to know why," said Linda Lye, staff attorney with the ACLU of Northern California.
The regulator and its acting director, Edward DeMarco, have come under heavy fire from liberal and community groups for resisting many initiatives they say would help struggling homeowners. The FHFA has contended that such plans would expose Fannie Mae and Freddie Mac, which it oversees, to excessive financial risk.
In August, the FHFA came out strongly against the eminent domain idea, calling it a “clear threat” to the financial stability of Fannie and Freddie. It also threatened to sue any city that pursued such a plan, as well as cut that city off from access to the two housing companies.
The groups say a FOIA request was filed with the FHFA in October, but received no response. An FHFA official declined to comment.
The lawsuit coincides with an expected change in leadership at the housing agency. President Obama’s pick to take over as director, Rep. Mel Watt (D-N.C.), appears set for Senate confirmation. Watt was previously blocked by the Senate, but a recent rule change makes it possible for him to be confirmed with just Democratic votes.
Many of the same groups critical of DeMarco have backed Watt, hoping he will pursue policies that extend further relief to homeowners.