On December 5, ACLU-affiliated entities and borrower advocacy groups filed a lawsuit in the Northern District of California seeking to compel FHFA to produce “all [FHFA] records pertaining to the use of eminent domain to purchase mortgages.” Alliance of Californians for Community Empowerment v. Fed. Hous. Fin. Agency, No. 13-5618 (N.D. Cal. Dec. 5, 2013). Specifically, the plaintiffs seek to compel FHFA to respond to a FOIA request that demanded, among other things, (i) all communications and records of meetings between FHFA leadership and financial services industry trade associations and individual companies; (ii) all FHFA records regarding the City of Richmond’s proposal to seize certain mortgages; and (iii) all studies and analyses of the impact of eminent domain or principal reduction proposals relied upon by FHFA in support of materials it released in August 2013 outlining potential actions the agency could take in response to local efforts to employ eminent domain to seize mortgages. The complaint details the organizations’ position on eminent domain as a tool to implement principal reduction, which the organizations complain FHFA has improperly failed to pursue on its own. The request and complaint suggest that FHFA’s eminent domain position was unduly influenced by the financial services industry and “is advancing the interests of Wall Street firms at the expense of the nation’s homeowners.” This latest challenge of FHFA’s positions on eminent domain and principle reduction precede, potentially by days, an anticipated vote to confirm Representative Mel Watt (D-NC) to serve as FHFA Director.
On January 22, Michael Stegman, Treasury Department Counselor for Housing Finance Policy stated in remarks to an industry conference that the Treasury Department opposes expansion of the Home Affordable Refinance Program (HARP) to include loans originated after the current May 31, 2009 cut-off date. Treasury believes that few loans originated after that date are underwater, and that expanding the eligibility date would only prolong market and investor uncertainties. Treasury also does not support efforts by some local jurisdictions to employ eminent domain to seize and restructure underwater mortgages, stating that the administration instead supports legislation to increase refinancing opportunities. Dr. Stegman also discussed housing finance reform generally—he expressed support for the ongoing Senate efforts to reform Fannie Mae and Freddie Mac, and indicated that the Treasury Department plans to facilitate reform of the private label securities sector by holding “a series of conversations with relevant regulators, market participants, and other stakeholders.”
On November 6, the U.S. District Court for the Northern District of California dismissed without prejudice as not yet ripe for determination a suit by investors seeking to preempt a California city’s plan to use its eminent domain authority to seize certain mortgages. Bank of N.Y. Mellon v. City of Richmond, No. 13-cv-3664-CRB, slip op. (N.D. Cal. Nov. 6, 2013). The court described the suit as “nearly identical” to one the court dismissed in September. Wells Fargo Bank, N.A. v. City of Richmond, No. 13-3663, slip op. (N.D. Cal. Sept. 16, 2013). The court held that the investors’ claims are not ripe under Article III considerations, explaining that allowing the parties to intervene before the city formally implements the program by actually attempting to use its eminent domain power to seize a loan would stretch the role of the judiciary beyond what is reasonable to maintain judicial efficiency. The court was not persuaded by the investor’s argument that, unlike in the prior dismissed action, the investors here requested and briefed declaratory relief, which should be subject to a relaxed standard. Further, the court held the claims are not ripe under a prudential doctrine, reasoning that (i) the case is not fit for review because an actual dispute has not yet materialized and is dependent on a factual scenario that may never play out, and (ii) the investors face no imminent, irreparable harm.
On September 16, the U.S. District Court for the Northern District of California dismissed one of two suits filed recently by investors to preempt a California city’s plan to seize certain mortgages using the government’s eminent domain authority. Wells Fargo Bank, N.A. v. City of Richmond, No. 13-3663, slip op. (N.D. Cal. Sept. 16, 2013). The court restated its decision reported last week that the mortgage investors’ claims were not ripe for action and further held that the case must be dismissed, instead of stayed, because the “[r]ipeness of the claims does not rest on contingent future events certain to occur, but rather on events that may never occur”—i.e. the city may not ever move forward with its seizure plan. The decision only addressed the timing of the suit, and did not reach the merits of the investors’ claims that the city’s plan, among other things, will violate the U.S. Constitution’s Takings Clause, Commerce Clause, and Contract Clause, as well as the state’s statutory prohibitions against extraterritorial seizures. A second similar action filed by a separate group of investors remains pending.
On September 11, the California city of Richmond reportedly voted to proceed with a plan to employ its eminent domain authority to seize certain mortgages. As previously described, the city recently demanded that owners and servicers of 626 home mortgages sell the loans to the city or face seizure. The city proposed to then write down the principal of the purchased mortgages and sell the loans to new investors. On September 12, a U.S. District Court hearing challenges to the city’s action declined to enjoin the city’s plan at this time, finding that the issue is not yet ripe for determination. The court did not decide on the city’s pending motion to dismiss, but stated it will rule by September 16 on whether dismissal is appropriate or whether that motion also should be put on hold.