Mark Winston Griffith

Saving Tenants in Foreclosed Homes

One of the rare bright lights in the pall that has fallen over homeowners in this country is that Fannie Mae and Freddie Mac, the largest holders of mortgages in the country, have both said they would stop evicting tenants from properties that end up in their hands after a home has gone into foreclosure. Considered a model of responsible public policy, many advocates feel this Fannie/Freddie approach is a practice private lenders should adopt as well.

That’s why there’s now a chill in the air as the Wall Street Journal reports that real estate agents are complaining that the Fannie/Freddie action will make it more difficult for them to sell properties.

"Fannie Mae is in the business of financing homes and selling them, but now this change is going to result in properties probably remaining on the market," said Brett Barry, an agent with Realty Executives in Phoenix who sells properties that now include tenants eligible for a Fannie Mae lease. "Now," he added, "if someone calls me at 3 a.m. with a toilet malfunction or a roof leak, I'm responsible for handling that."

Fannie and Freddie will market the homes for sale while they are rented and leases will transfer to the buyers. Real-estate agents also say they are worried the policy will limit the pool of buyers to investors, and that it could lead rental prices to dictate sale prices and further erode values."If you've got a house worth $350,000 and rent it for $1,200, no investor is going to buy that," said David Peeples, a Tallahassee, Fla., real-estate agent. Because that monthly rent wouldn't cover the mortgage payments, he said, "The end result is that with a tenant, it's going to be unsellable."

Fannie and Freddie officials said they believe the program will attract investors who want to keep the properties rented. "If we get a good renter and set the rental rate at a good market rate, then it really should be attractive to an investor," said Jason Allnutt, Fannie's vice president for credit-loss management.

And some property managers argue that it is better to have tenants in the homes than to leave them vacant. "Homes will not sit there and quietly be destroyed, even if the tenant's a little sloppy in their upkeep," said Betsy Morgan, who oversees residential-property management for Prudential Tropical Realty in Tampa, Fla.

For too long the mortgage lending and real estate industries have called the shots on affordable housing issues in this country. The time has come to stick with effective ways for cleaning up their mess.

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Posted at 9:03 AM, Feb 02, 2009 in Housing
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