Carrie Bay | 12.18.08

Fannie Mae confirmed this week that it is finalizing a new policy that will allow renter occupants in Fannie Mae-owned foreclosed properties to stay in their homes even if their landlord falls behind on the mortgage and goes into foreclosure – something the Wall Street Journal called “a landmark decision for tenants.” This would be the first nationwide renter-protection program of its kind. According to the New York Times, the policy is estimated to benefit up to 4,000 renters initially.

Tenants would qualify for such protection as long as they can continue to make their rental payments. The new policy essentially positions Fannie Mae as acting-landlord or property management company that handles monthly leases for renters of its foreclosed properties. For tenants who would prefer not to enter into a lease with the government-sponsored enterprise (GSE), Fannie Mae said it would offer monetary support for their transition to a new residence as an alternative option.

As part of its year-end holiday foreclosure moratorium, Fannie Mae currently has a tenant eviction and foreclosure sale suspension in place through January 9, 2009. The new tenant policy will go into effect before that suspension period comes to an end, Fannie said. The goal of the suspension is to ensure that no renters are put out of their homes during this time frame, the GSE said in a statement to the press.

“We have notified our attorney and broker networks to cease all eviction-related communications and proceedings during the suspension period,” said Brian Faith, communications director and spokesperson for Fannie Mae. “We estimate that 7,000 - 10,000 families have been able to stay in their homes as a result of the foreclosure and tenant eviction suspension,” Faith said.

According to New Haven Legal Assistance, a consumer advocacy group in Connecticut, any tenant evictions by Fannie Mae or its sibling mortgage financier Freddie Mac would violate legislation passed earlier this year to rescue the GSEs, which requires them "to permit bona fide tenants who are current on their rent to remain in their homes under the terms of their lease," the Journal reported. New Haven has threatened to sue Fannie Mae over recent evictions in Connecticut that fall under this umbrella.

A Freddie Mac spokesperson told the Journal that his organization was currently evaluating similar tenant policy actions. James Lockhart, director of the GSEs' regulator, the Federal Housing Finance Agency (FHFA), told the press that both enterprises were looking at how best to handle situations where renters live in a house going through foreclosure, and that they should have updated policies soon that protect both the tenants and the mortgage holders.