As a follow-up to a story we published last week regarding the eviction of renters from foreclosed homes, we are happy to now report that Fannie Mae has become the first lender to review and reverse its eviction policies.

Many big lenders immediately move to evict tenants from homes following the completion of the foreclosure process even if these renters are current in their rent or have been tenants for many years.  Many of the renters may not even have been aware that there was a problem with the property until they were ordered to move, often on very short notice.  Lenders want the property vacant to ease management concerns, lower liability, and because they think the property will be easier to sell if vacant.

Over this past weekend Fannie Mae announced that it is revising its eviction policy and will allow tenants to remain in their homes following foreclosure.  The new rules are expected to take effect on January 9, the expiration date of an initiative announced on November 20 by both Freddie Mac and Fannie Mae under which the two government-sponsored enterprises (GSEs) had said that they would suspend all foreclosures until after the year-end holidays.

While Freddie and Fannie have halted the completion of foreclosures and of evictions through the holiday season they have continued with the pursuit of existing foreclosure actions up to the point of foreclosure and with the initiation of new foreclosures.  Under the policy announced on Sunday these activities will also be suspended until January 9. 

Fannie Mae has an estimated 68,000 homes in foreclosure at the present time but most of these are owner occupied.  The GSE anticipates that it's newly announced policy will initially impact around 4,000 tenants who will be given the option of signing a new lease with Fannie Mae.  Where renters do not wish to continue their tenancy Fannie Mae might provide financial help with relocation.

The new policy does nothing to help renters being driven from homes being foreclosed by most banks and they, almost by definition, are living in homes with riskier and more foreclosure-prone loans.  The tighter rules followed by the GSEs in regard to investor properties resulted in relatively fewer of these loans on their books.

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.

Mr. Lu said that, as far as Fannie Mae officials knew, this will be the first nationwide program of its kind.