The Wall Street Journal reported on Sunday that Fannie Mae announced that they will allow tenants to remain in their homes and avoid eviction, even if the property’s landlord is facing foreclosure. The new rules are expected to take effect on January 9, the expiration date of an earlier initiative announced by both Freddie Mac and Fannie Mae under which the two had said that they would suspend all foreclosures until after the year-end holidays.

The decision by government-backed mortgage finance giant Fannie Mae represents only one small segment of the market, and excludes many homes which were purchased with riskier subprime loans that are now falling into foreclosure. Fannie Mae and Freddie Mac, however, are uniquely structured to be able to address the issue, which effectively now has them acting as a type of landlord or property-management company to administer month-to-month leases to renters of their foreclosed properties.

According to the WSJ article, the actions are a result of growing pressure on the mortgage company from a legal-aid group that threatened to sue over recent evictions.

Fannie’s new rental policy was briefly outlined in a letter to Amy Marx, an attorney with New Haven (Connecticut) Legal Assistance Association.  Ms. Marx had written Fannie Mae last week asking for the suspension of tenant evictions.  Ms. Marx wrote that the evictions “are being brought in violation of protections mandated by the federal bailout legislation” which, in Section 109b “requires Fannie Mae to permit bona fide tenants who are current on their rent to remain in their homes under the terms of their lease.”

Curtis P. Lu, senior vice president and principal deputy general counsel of Fannie Mae wrote on Ms. Marx on Sunday that the GSE, as part of its ongoing review of foreclosure prevention efforts, has been “working to construct a new and comprehensive program to assist renters in foreclosed properties.”  Mr. Lu said that the goal of the new plan is to “reach out proactively to renters to offer them the opportunity to enter into leases while the property is marketed or to offer other assistance” and that he expected the rules to be fleshed out by the January 9 data.

Considering that vacant properties are more subject to vandalism and neglect, combined with the potential social and economic benefits for the tenant who has avoided eviction, this seems like a win-win scenario for both sides considering the circumstances.

Related posts:

1. “Merry Christmas”: Fannie and Freddie announce Holiday Foreclosure Suspension Fannie Mae and Freddie Mac recently announced that from November...
2. Rent Your Repossessed Home? Yes, You Can! Freddie Mac recently launched the “REO Rental Initiative”  that gives...
3. As the Foreclosure Moratorium is Lifted, What Next? The foreclosure process for many American homeowners has been interrupted...
4. Financing Considerations When Purchasing “Flipped” Properties From Investors The real estate market in many areas of the United...
5. An Easy Way to Determine Eligibility for the “Making Homes Affordable” Refinance Program Yeah, we know, another article on mortgage restructuring. We are...