The Chicago ordinance requires a $500 registration fee for vacant REO homes, and imposes other requirements on owners of foreclosed properties.
FHFA claims the city ordinance is preempted by federal law and interferes with the agency's management of the Fannie and Freddie conservatorships.
"The ordinance would create risks and liabilities for the [government sponsored] enterprises at a time when they are already supported by taxpayers, including the city of Chicago," the GSE regulator says in a lawsuit filed Monday.
In its pleading, FHFA urges the court to shield the GSEs and their servicers from complying with the city ordinance.
Fannie and Freddie own 258,000 loans with secured properties within the Chicago city limits.