The Chicago ordinance imposes a $500 registration fee for each vacant home and requires the owners to maintain the foreclosed properties.
The GSE regulator recently sued the city in U.S. district court to exempt Fannie and Freddie from having to comply with the ordinance.
"This lawsuit is inappropriate and obtuse, especially since Chicago's ordinance was agreed upon by major private lenders after months of negotiation," said Rep. Jan Schakowsky, D-Ill.
FHFA maintains the city ordinance is preempted by federal law and it will increase the cost of managing the Fannie and Freddie conservatorships.
Sixteen House Democrats signed a letter urging FHFA to reconsider its position. The policymakers believe the ordinance will ensure that properties are maintained, helping to sustain the value of abandoned homes and the surrounding neighborhoods.
"We strongly urge you to abandon FHFA's legal obstructionism for the benefit of our communities, the taxpayers, and the country," the letter says.