Thursday, January 15, 2009

Fannie to Allow Tenants to Remain in REO Properties

By Diana Golobay on the Housing Wire:

A previous foreclosure and eviction suspension to last until Jan. 9 was announced in November by government-sponsored entity Fannie Mae (FNM: 0.69 0.00%) 2008 and later — on Jan. 8 — extended to the end of January. Originally said to be a pause to allow time for the streamlined modification process (SMP) to activate on Dec. 15, the suspension also appears to have been the precursor for a new program announced Tuesday — a national real estate-owned (REO) rental policy through which property managers and brokers may collect rent on Fannie’s behalf — and a move by Fannie to essentially become a giant, government-controlled landlady.

The REO rental policy applies to renters — not “mortgagers” — living in single-family foreclosed properties owned by Fannie. At the time of foreclosure completion, Fannie offers either a cash incentive for the renter to vacate the property or the option to sign a new month-to-month lease and pay the local market rate. The policy states, however, that the property being occupied by the renter will be listed for sale and may undergo repairs at any time the renter is occupying it. The lease will transfer to the property’s new owner at the time of sale.

“Renters in foreclosed properties have often been a casualty of the foreclosure crisis the country is facing,” said Fannie’s COO Michael Williams. “This policy will allow qualified renters to remain in Fannie Mae-owned properties should they choose to do so, mitigate the disruption of personal lives that foreclosures can cause, and help bring a measure of stability to communities impacted by high foreclosure rates.”

The original suspension was viewed as a sort of foreclosure moratorium for the 2008 holiday season — a pause like so many other voluntary and state-mandated moratoria to allow time for modification. Now that the target date for the modification program has come and gone and the SMP is in place, the announcement to extend the suspension through the end of the month to put a second program into place calls into question what effect, if any, the SMP had, at least where rental properties are concerned — although a Fannie spokesperson told 
HousingWire the effectiveness of the SMP had no bearing on the latest extension of the foreclosure and eviction suspension.

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