A group of nonprofits, including the American Civil Liberties Union (ACLU) and the Center for Popular Democracy, have filed a freedom of information lawsuit against the Federal Housing Finance Agency (FHFA). The ACLU has asked that government agency disclose efforts to prevent municipalities from using eminent domain to aid underwater homeowners and that it increase transparency in its dealings with the financial industry.
FHFA has warned that it may challenge municipalities that seek to apply the eminent domain principal in the fight against foreclosures and that it could order regulated entities to stop doing business in those places. The nonprofits have said that most cities that are considering the use of eminent domain for this purpose have been particularly affected by foreclosures and have predominantly low-income, minority populations. Use of eminent domain allows municipalities to work around mortgage contracts, acquire loans from bondholders, write them down, and return them to bondholders with reduced principals. This only works with private label security mortgages, which are not backed by the federal government. The nonprofits' lawsuit claims that one of the FHFA's "statutory mandates is to help the housing market recover" and that suing municipalities that try to use eminent domain goes against that obligation.