Meet your new landlord: Fannie Mae

Renters whose owners are losing homes to foreclosure may not necessarily have to look for another place to live. As reported in the New York Times:

In a move that provides relief to thousands of renters who face eviction but draws the federal government even deeper into the housing market, the loan giant Fannie Mae said Sunday that it would sign new leases with renters living in foreclosed properties owned by the company.

It is the first nationwide effort to provide widespread 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.

Freddie Mac is weighing options but hasn't made a similar announcement yet. Look for the policy to take effect on Jan. 9.

Fannie Mae’s initiative is expected to initially benefit as many as 4,000 renters living in foreclosed homes owned by the company.

That seems like a drop in the bucket but most of the Fannie Mae properties in foreclosure are owner-occupied. Still, if other lenders get on board, the policy could help bring a snowball effect. I think it beats having so many homes sitting empty. People have to live somewhere. Downsides?

-- Lauren Beale

Thoughts? Comments?

Comments

[xtine]

Who do you call when the plumbing breaks?

Will renters have the option of buying the building and turning it coop, as happened in NY in the 70s?

[syscom3]

This is what should have been implimented months ago.

Some moey coming in, is far better than no money coming in.

[Hangemhigh]

Does that mean that we as taxpayers will be the ones on the hook for the property tax on these units as well?
I don't understand the reasoning for any of these stupid plans. THE FREE MARKET SYSTEM WORKS JUST FINE. This seems like another pointless excercise in the government trying to keep property values artificially propped up. Let the properties go into foreclosure and let the market adjust on it's own. We are just pouring tons of cash down the drain. When you examine these proposals in -depth, you quickly realize how few people they really help.

Thanks, Lauren, for another good post!

[Drew]

The "innocent renters" do need these protections.

And I'm sure that Fannie and Freddie can package these properties to investors who will be willing to buy an investment portfolio of properties that already have rental income.

If the price is right, of course.

[Dan]

First smart thing the gov't has done since the bailouts began.

[Nick]

Downsides:

- Government has no incentive to ensure market rate rentals, so might end up subsidizing below-market rentals at a loss to taxpayers

- Government has no experience/infrastructure for managing rental properties, so will likely do a bad job and waste taxpayer money doing it

- Prevents those properties from being sold through the open market, which extends the housing downturn and economic stall, which contributing to unaffordable housing

- Adds another brick in the tomb of socialism being built on top of the foundation of the free market which made this country prosperous

The sad part is that it's not a bad idea, in concept. A much better implementation would have been to sell the properties to investors with the stipulation that tenants be allowed to stay for a fixed period of time (eg: a year) at current rate, and then discount the price appropriately for that condition; in that case the GSE still takes a loss up front to allow the tenants to stay, but you avoid all the other downsides. Unfortunately, this is another great example of taking a good idea and turning it into a steaming pile of poor judgment, and yet another in a long line of examples of why the government should be running as little as possible.

[Laker]

xtine asks :"...Who do you call when the plumbing breaks?..."
That is easy. Just call Shiela Bair or Paulson. If they can't help, ask for their manager, Bush.
But if you wait a month, you'll have Obama in charge. That will likely send you a check to fix anything you want in the house.

Lauren, if you're looking for ways to help renters, that should be to make the rent tax deductible like the interest on a mortgage. That will increase the take home pay of many renters and will stimulate discretionary spending.

[Tim K.]

Nick wrote:
"A much better implementation would have been to sell the properties to investors with the stipulation that tenants be allowed to stay for a fixed period of time (eg: a year)..."

Already see a major flaw in your plan - this assumes these properties can find a buyer AT ALL.

[Tom Lindmark]

It seems like they need to think it through some more. Here are some problems I see with it. http://www.butthenwhat.com/?p=414

[Tim K.]

I haven't seen any numbers for this problem. Is it really that big of an issue? Yes, I know it makes for a nice "sad story" and it makes the government agencies look like they are a caring bunch, but something tells me that the number of renters actually facing this situation is not that high.

Which means that having them stay there is probably not that big of a deal in general, and neither is kicking them to the curb.

[Nick]

When the GSE's can't find a buyer for an investment property at any price, after offering to pay all closing costs including things like title insurance and clear all liens/etc., the country has a much bigger problem.