The American Civil Liberties Union has sued the Federal Housing Finance Agency seeking information about the FHFA's position on the use of eminent domain to reduce the principal amounts of mortgage loans.

The organization brought the suit in U.S. District Court for the Northern District of California under the federal Freedom of Information Act, contending that it had asked the agency about how it has developed its position on the use of eminent domain to reduce mortgage principal and, particular, about the role larger banks might have played in developing that policy.

“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 ACLU said that it first asked for the information in October and, after receiving one response from the agency, have not received any more.

In the wake of the city of Richmond, Calif., beginning to take steps toward using eminent domain to reduce the principal on some mortgages, the ACLU charged the FHFA threatened legal action against Richmond or any other city that uses eminent domain to reduce mortgage principals and by threatening to deny credit to people seeking mortgages in those communities.

This was particularly odd, the group charged, since Richmond and other locales had made it clear that they were not looking at using eminent domain to obtain any loans held by Fannie Mae or Freddie Mac but were looking to use the tactic only to help homeowners whose loans had been packaged into private label securities and which were not sold on FHFA-regulated markets.

“The FHFA's statement is particularly difficult to understand in light of the fact

that Richmond, and all other municipalities considering using eminent domain for principal reduction, have stated that they will use their eminent domain authority only to target loans held in private-label mortgage-backed securities,” the group wrote in its complaint.

“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.

“Communities are trying to get back on their feet after one of the country's most devastating economic recessions,” said Ady Barkan, staff attorney with the Center for Popular Democracy, one of the groups on whose behalf the ACLU brought suit. “Struggling families need options, not threats. As cities explore solutions that can work for them, the FHFA should be encouraging programs to end the foreclosure crisis, reduce debt, and rebuild our economy, not clamping down on them. And it should be transparent with the American people about its relationship with the financial industry,” Barkan said.

The FHFA declined comment on the case, citing its policy of not commenting on pending litigation.