A Chicago ordinance requiring banks to maintain vacant properties has been met with resistance by the Federal Housing Finance Agency (FHFA), which has filed a lawsuit against Chicago to prevent the ordinance’s enforcement, according to HousingWire.
Originally passed in October, the ordinance requires the owners of vacant properties to perform regular maintenance beginning within 60 days of the property’s default and pay a $500 registration fee. Owners would need to board windows, shovel snow, trim the grass and perform other tasks to uphold the property’s – and neighborhood’s – value and esteem.
The Government Accountability Office, in a recent report, said that vacant homes can reduce the value of neighboring properties by up to $17,000.
Though the ordinance was criticized by housing activists for not going far enough (the original proposal would have forced upkeep before foreclosure proceedings even began), the FHFA’s lawsuit, according to HousingWire, claims that the ordinance would unfairly force Fannie Mae and Freddie Mac, the GSEs it oversees, to maintain properties that “the enterprises have not foreclosed upon … and therefore do not have ownership of.”
The big issue, as HousingWire pinpoints, is the financial strain the ordinance could place on Fannie and Freddie. Already indebted to the Treasury Department for a combined $151 billion, the GSEs recently announced that they spent nearly $1 billion in property maintenance in 2010; yet, the city’s ordinance could see the GSEs coughing up more and more money to cover noncompliance fees, which in some cases amount to $1,000 a day.
Therefore, as the agency responsible for the solvency of the GSEs, the FHFA’s lawsuit claims the ordinance will restrict its ability for “preserving and conversing” Fannie and Freddie’s assets.
For their part, HousingWire reports that Fannie and Freddie contacted their Chicagoland services on Monday and provided them with a set list of guidelines on how to progress with the ordinance.
HousingWire reports, “Lenders will be enlisted to help the GSEs track amounts paid to the city of Chicago under the ordinance for properties that have not been foreclosed upon. Servicers will also be required to report any payments or other costs paid to repair properties that haven’t been foreclosed on without the ordinance in place.”
After the initial ordinance was passed in the summer, Moody’s Investors Services quickly issued a report criticizing the measure, saying that such pressure on banks would increase lending costs for prospective homebuyers in the surrounding communities.
Chicago is not the only city to attempt such cost-controlling measures, though. Las Vegas, one of the most foreclosure-prone cities in the U.S., just passed a similar ordinance last week, one the FHFA also promises to look into as well.