Soon after settling in to his job as Chicago mayor, former Obama administration chief of staff Rham Emanuel was praising his new city council for passing an ordinance that requires mortgage servicers to maintain vacant properties — even before the foreclosure process has completed.
The Vacant Buildings Ordinance requires mortgagees to conduct monthly inspections to determine if a property is vacant and pay a $500 registration fee for vacant properties even if the property hasn’t yet been take back through foreclosure.
The ordinance prompted Moody’s Investors Service to warn that lenders would be required to determine vacancy, ensure safety and provide maintenance and upkeep during the foreclosure process — a move that could push transaction costs higher if adopted in a national movement.
The problem is that lenders are saddled with the expense of owning a home even though they don’t have any property rights. Other issues raised were whether courts will tolerate trespassing, or if they will overrule the ordinance.
Fannie Mae Monday has issued a servicer bulletin indicating that its regulator, the Federal Housing Finance Agency, is requiring servicers of Chicago loans to track and report on all payments, expenditures and costs made by servicers or under their direction to comply with the ordinance. The tracking impacts just the expenses resulting from adoption of the ordinance.
But at the same time that it is requiring servicers to track the cost of the ordinance, the regulator is also suing the city of Chicago to prevent enforcement of the ordinance.
A complaint was filed Monday in U.S. District Court for the Northern District of Illinois against the city by the FHFA.
“FHFA reluctantly took this action after undertaking efforts to discuss these matters and to seek alternative solutions to the problem of vacant properties that the ordinance seeks to address,” a statement said. “FHFA indicated that the ordinance could affect costs for homeowners in the city.”
The regulator explained that the ordinance imposes the cost of ownership on Fannie and its secondary cousin Freddie Mac. In addition to the $500 registration fee, the two firms would be subject to a $1,000-a-day fine for noncompliance with any provision of the ordinance.
Also at issue is subjecting Fannie and Freddie to the regulation and supervision of the Chicago Department of Buildings instead of FHFA.
“The lawsuit alleges that the city’s ordinance impermissibly encroaches upon FHFA’s role as the sole regulator and supervisor of the enterprises,” the announcement stated. “As conservator of Fannie Mae and Freddie Mac, FHFA has been charged with the responsibility of preserving and conserving the assets of the enterprises.”
