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Fannie Mae OKs Renters to Stay After Foreclosures

December 23rd, 2008

In a recent article, Carol T. Powers analyzes the recent Fannie Mae move that enables relief to thousands of renters who face eviction but draws the federal government even deeper into the housing market. Fannie Mae said recently that it would sign new leases with renters living in foreclosed properties owned by the company. John Taylor, a consumer advocate, said banks should follow Fannie Mae’s example. “There are renters all around the country who have been holding up their end of the bargain and paying their rent faithfully, but the landlord got into trouble, and so the renter is now unfairly facing eviction,” said John Taylor, president of the National Community Reinvestment Coalition, a consumer advocacy group. “It’s really good news that Fannie Mae is doing this. Now the question is whether private sector will follow suit.”

In recent months, skyrocketing foreclosure rates have exposed as many as 70,000 renters to evictions, even though many never missed rent payments, according to analysts who track housing data. In many cities and states, renters can be evicted after their home goes into foreclosure, regardless of how long their lease stretches into the future. Since then Fannie and Freddie have come together with the “HARP mortgage” that allows their customer to refinance no matter how underwater their liens may be. The HARP 2.0 has already helped thousands of homeowners find a new mortgage with a lower fixed interest rate.

What are Fannie And Freddie Doing to Stem the Foreclosure Crisis

Many financial institutions including JPMorgan Chase and Bank of America have policies to evict renters after foreclosure, company representatives said. Fannie Mae’s initiative is expected to initially benefit as many as 4,000 renters living in foreclosed homes owned by the company. Fannie Mae has traditionally only bought and sold mortgages. But when a loan held by the company goes into foreclosure, Fannie Mae gains ownership of the underlying property until it is resold to new investors.

Fannie Mae owned 67,500 properties in foreclosure at the end of September, according to the company’s most recent filings. Most of those were owner-occupied. Under the new policy, former owners will most likely not be eligible to rent homes they lost in foreclosure.

It is the first national effort to provide significant relief to renters ensnared by the unfolding mortgage crisis, and it will effectively transform Fannie Mae — a government-controlled mortgage finance company into a national landlord. It may also increase pressure on private lenders to establish similar programs and on lawmakers to pass renter relief. Read the complete article at Bloomberg online.

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