ACLU sues FHFA over eminent domain plan

by Ryan Smith06 Dec 2013
The American Civil Liberties Union is suing the Federal Housing Finance Agency over the FHFA’s position on the use of eminent domain to reduce the mortgage principal for underwater homeowners.

Earlier this year, the city of Richmond, Calif., began exploring a plan in which the city, in partnership with the private firm Mortgage Resolution Partners, would buy underwater mortgages, seizing the properties through eminent domain should the note-holders refuse to sell. The city would then refinance the mortgages at terms easier for the homeowners to meet. Other municipalities have taken notice of the plan; the idea has been or is being considered in Chicago, Baltimore, Newark, N.J., and other cities throughout the country.

But the controversial plan has raised the ire of both industry groups and regulators. The FHFA said it would instruct Fannie Mae and Freddie Mac not to guarantee loans in municipalities that used the plan, citing concerns that “such programs could negatively affect the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.”

ACLU’s suit against the FHFA seeks information on how the agency decided to take that position and the role big banks might have played in influencing the decision, according to a report in the Credit Union Times.

“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 ACLU attorney Linda Lye.

The ACLU lawsuit said it made no sense for the FHFA to issue a directive against guaranteeing loans in municipalities that used the eminent domain plan, since all the cities considering the plan have made it clear they would not use eminent domain to seize mortgages held by Fannie Mae or Freddie Mac. Rather, the plan would be aimed at loans packaged into private-label securities not sold on FHFA–regulated markets, the Times reported.

“By definition, the loans that the government sponsored entities, supervised by the FHFA, guarantee and securitize are packaged into agency mortgage-backed securities, and are therefore not subject to seizure under the eminent domain programs under discussion,” the ACLU said in the lawsuit.

The FHFA has not commented on the case.


  • by Laurie | 12/6/2013 11:59:56 AM

    I would like to see someone like the ACLU spend their resourses on something that will actually help low income families. If they want to sue for discrimination, how about sue over the exclusive use of credit scores to price mortgages. Responsible, bill paying lower income people typically carry a lot less credit, thus casueing a naturally lower credit score due to less crdit history or credit lines available. As a result of them having lower scores, combined with buying lower priced properties, (thus getting smaller mortgages), they are penalized with much higher interest rates. They may have NEVER had a late rent or mortgage payment in their lives, but simply becasue they don't have a 740+ fico score, they are penalized with paying more for 30 years. Please tell me how that is far or equal?

  • by Tom D | 12/6/2013 12:06:52 PM

    Lets see. A government organization being influenced by big banks. Gee, why would anyone ever think that could happen?! Follow the money. Not sure who I distrust more in this scenario - the banks or the government. Pretty much of a toss up in my opinion.

  • by John Deleva | 12/6/2013 12:18:53 PM

    On the one hand the ACLU along with many other forces for housing equality and access to include Congress pushed for loose lending in the form of CREA, weak underwriting guidelines pre-mortgage crisis and a host of other such initiatives to fulfill the goal of higher home ownership percentages. On the other hand the same forces are at work to force the servicers to write down principle balances or face another government action...damned if you do, damned if you don't. Can this be real????? Yes it is in the new norm and world order the liberals prescribed and are now executing. The moderates had better wake up and straighten out the left and the right before this country is damaged beyond repair.


Should CFPB have more supervision over credit agencies?