January 30, 2009

Eviction Moratorium Extended And Freddie Becomes A Landlord

"Freddie Mac and Fannie Mae, the mortgage-finance companies under federal control, are extending by one month a freeze on evictions for homeowners in foreclosure as delinquencies soar in a slumping economy.

Freddie, the second-largest source of U.S. home loan money, said it will now allow renters in homes the company has repossessed to remain using monthly leases at market rates. Homeowners who have lost their houses to foreclosure can also rent the properties back from the company at market rates, McLean, Virginia-based Freddie said today in a statement."

Freddie, Fannie Extend Eviction Freeze Until March [Bloomberg]
Actual San Francisco Foreclosures Down 42% QOQ (Up 70% YOY) [SocketSite]

First Published: January 30, 2009 9:15 AM

Comments from "Plugged In" Readers

Pretty soon they'll make it indefinite or have a TARP bank buy out foreclosures and let the taxpayer eat the cram down. I guess that's what they're doing with Phony and Fraudie. Mmmm, cram down...

Posted by: unearthly at January 30, 2009 9:20 AM

Why not let the former owners rent the foreclosed properties? Assuming they are, in fact, paying market rents. That's what they'll be doing anyway...

Then, one day, (years from now) they'll have enough credit and savings again to buy back their old house at 50% off the original purchase price.

It creates a lot less disruption than forcibly evicting people... as long as we're meddling and subsidizing bad behavior, why not go all-out?

Posted by: Jimmy (No Longer Bitter) at January 30, 2009 9:31 AM

Why not let the former owners rent the foreclosed properties? Assuming they are, in fact, paying market rents. That's what they'll be doing anyway...

Moral hazard, anyone who's marginal will just stop paying their mortgage with the expectation that they can just rent it back for a lot less; all subsidized by their fellow taxpayer.

Posted by: unearthly at January 30, 2009 9:37 AM

Ok, fine. But if they're foreclosed on, they will move out eventually and rent something for market rents anyway. The taxpayer still takes a loss. What's the difference?

Posted by: Jimmy (No Longer Bitter) at January 30, 2009 9:40 AM

The difference is we'll never see a bottom as price discovery is delayed by government subsidized quasi-rentals. Resold foreclosures get us closer to finding a bottom; as prices become more affordable (lower) more buyers will step in.

Posted by: unearthly at January 30, 2009 9:52 AM

I'm pretty sure there will be enough transactions at the margins to establish a true market value.... after all, perhaps some people will take the opportunity of a foreclosure to move closer to work and rent there? Or, they might have a new job that's forced them to re-locate... there's dozens of possibilities.

Posted by: Jimmy (No Longer Bitter) at January 30, 2009 10:07 AM

The moral hazard argument would be persuasive if we were not already bailing out all the bad institutional actors. Individual does something bad, they must suffer, a company does something bad and the government comes to its rescue. The little guys get hosed while the big players get bailed out. Moral of the story? Don't be a little guy?

Posted by: Rillion at January 30, 2009 10:19 AM

Why not let the former owners rent the foreclosed properties? Assuming they are, in fact, paying market rents. That's what they'll be doing anyway...

perhaps I'm not understainding the question, but they are allowing this.

From Fanniemae.com:
Fannie Mae (FNM/NYSE) today announced that it will extend its suspension of evictions from Fannie Mae-owned single-family properties through February 28, 2009. The suspension applies to all single-family properties including owner-occupied properties that have been foreclosed upon as well as foreclosed properties occupied by renters.

emphasis added.

Posted by: ex SF-er at January 30, 2009 10:30 AM

"Why not let the former owners rent the foreclosed properties?"

That's exactly the plan. Everyone benefits: homeowners get to stay, neighborhood blight decreases. In neighborhoods with lots of foreclosures, this could help stabilize things. Presumably in the neighborhoods in which this will be done, the value of the properties as rentals meets or exceeds what the lender can get from foreclosure. Only downside: it may encourage some people to go into foreclosure, knowing they can stay.

Posted by: Dan at January 30, 2009 10:33 AM

Dan@10:33am - "Everyone benefits"

I am very tired of this simple-minded claim. It's endemic among real estate shills and pandering politicians.

I don't benefit.

I pay the taxes that support the subsidy.

The house is not available to me for purchase at a market price.

I. Do. Not. Benefit.

My counter-proposal is debtor prisons for anyone who falsified information on a mortgage loan.

Just sayin'....

Posted by: Debtpocalypse at January 30, 2009 10:49 AM

In the neighborhoods in which houses will be rented, they cannot be easily sold-- otherwise, it would make more sense to sell the property.

If you buy another foreclosed house in the neighborhood, you benefit by their not being blighted, abandoned houses there.

Posted by: Dan at January 30, 2009 10:55 AM

I think Jimmy had no misunderstanding, he is emphasizing that it makes sense. "Why *not* let the former owners rent there?" was his intention.

But of course, as everyone has figured out, this just makes the problem worse, but hides it from view. Now everyone can walk away, but pretend nothing has happened. You get to keep living there for awhile, the neighbors never notice, and the only one who loses is the taxpayer, who now has to absorb more and more foreclosures, because we are making them somewhat less painful.

Well, god bless America: first we make it effortless to get a mortgage, and now we make it effortless to walk away from one. How long did Obama's "era of responsibility" last? 9 Days.

But the reality is that taxpayers are losing money on mortgages hand over fist. The mortgage servicers are overwhelmed. Option arm defaults are up to 28% and projected to be in excess of 60%.

The problem is too big and getting bigger. If you stop paying your mortgage, it's up to a year before they even start to deal with you. Then it can be many more months while the home sits vacant, collecting weeds, driving the neighbors crazy, etc. So this allows them to collect rent from the deadbeats day 1, and then in a year they can sell off the property and let the new owner kick you out so they don't have to take the heat.

In the meantime, they at least get something out of the deadbeats, which is more than they are getting now.

So it makes more sense than anything else. It saves the taxpayer money and costs the deadbeat more than the current system. No one is getting a handout, but this will stop the deadbeats from getting a free ride.

Posted by: tipster at January 30, 2009 10:56 AM

"Homeowners who have lost their houses to foreclosure can also rent the properties back from the company at market rates."

P-lease.....

Anyone defending this must provide one - and only one - example when Freddie _or_ Fannie was able to price-discover the "market rate" of anything EVER.

Posted by: Debtpocalypse at January 30, 2009 11:03 AM

So this allows them to collect rent from the deadbeats day 1, and then in a year they can sell off the property

Until the foreclosure takes place or the current owner agrees to go rental no money will be be collected. Instead the current owner will live rent free for 9-12 months before they are forced to make a decision. Day 1 is way too optimistic...

Posted by: unearthly at January 30, 2009 11:07 AM

Rents won't be at market rates.

Many, many former "owners" will not pay their rent, when it does in theory start up.

Evictions will be very difficult when the USG gets involved. Future NYT headline: "Foreclosures by Fannie and Freddie Disproportionately Impact Women and Minorities". Count on it.

Fannie and Freddie will eventually have to pay renters to leave quietly.

Just another dog and pony show. Nothing is going to stop the fall of housing prices towards their fair values, which will be less than when the bubble began (primarily because of the reduced income prospects of the US going forward, increased taxation and regulatory state to pay for an "control" this mess, and the oversupply of housing encouraged by the false bubble proce signals).

Posted by: LMRiM at January 30, 2009 11:17 AM

Wait, does this mean that owners of foreclosed properties occupied by renters will be able to keep the properties and accept rent or does the rent go to Freddie/Fannie?

Posted by: geekgrrl at January 30, 2009 11:26 AM

I find the whole process disgusting. Seems like only the cheaters get rewarded. It is hard to watch the news. I hear complaints about bonuses on Wall Street (which I don't work on, but seems to be how their pay structure has always worked), but Congress wants to pass an $800 billion dollar stimulus that doesn't have any stimulus for jobs and growth in it. Then I read on Drudge that one contract worker could very well have taken down all of the Fannie data. How does a country with such bright people and prospects end up with these big bone headed representatives that create crappy gigantic companies like Fannie and Freddie? I know this is a bit of a rant, but I am beginning to feel overwhelmed and honestly, I don't like to hear Obama say things like this is a continuing disaster every day. I don't need him to lie to me, but can we focus on a solution, not some BS huge spending bill with a ton of pork? I thought things were going to change! I think more money should go to the people to spend. Divide up that package and you could pay $300K to everyone getting unemployment. Just saying. I know it sounds too conservative for most of SF, but something isn't right with these so called answers. If you don't have any money, you don't go out and overdraw your account to get ahead...

Posted by: anon at January 30, 2009 11:45 AM

Our one hope is that they use the same "market rate rents" that are used for Section 8 rentals. No doubt some bureaucrat will determine that Section 8 rents skew high (who would have guessed?) and that there should be different calculations for Freddie/Fannie renters. I mean, its only fair...

Posted by: EBGuy at January 30, 2009 1:57 PM

anon - you make some good points in your "rant" of 11:45AM. You ask how our country ended up being so poorly served by our representatives. Are we getting the govt we deserve? On a local level, do San Franciscans (crazy as we are) really deserve the Newsom administration and the board of supervisors? I think your idea to just give money to the people would actually produce far superior results to the disasterous steps we've taken and will be taking. Take the $3T or so that we're ultimately going to spend and instead just give $10,000 to every person in the country (even those here illegally). No strings attached - just let them spend. Some of that money might actually end up being deposited into some smaller banks that people trusted.

Posted by: FSBO at January 30, 2009 2:07 PM

On a local level, do San Franciscans (crazy as we are) really deserve the Newsom administration and the board of supervisors?

They were democratically elected, weren't they? Chris Daly was re-elected several times, wasn't he? Ditto for Bush/Cheney. We got what we asked for, and surely that means we deserve what we got.

Posted by: another_anon at January 30, 2009 6:04 PM

All you who voted for Obama, quitcher whining. You're all getting exactly what you wanted and everything that you deserve.

Posted by: what...ever at January 30, 2009 8:35 PM

"All you who voted for Obama, quitcher whining."

So far I'm quite pleased with Obama. But then I never had any illusions about what a president can actually do or expectations that he would overthrow the system. He'll throw the proles a few more bones than McCain would and he'll pull back on the 800 pound gorilla foreign policy. Both of which I'm in favor of.

Posted by: diemos at January 30, 2009 8:43 PM

What about renters (like me) who have paid their rent, on time, for years (four years to be exact). The landlord stopped making the payments (rent covered all expenses with a positive cash flow). They had negative equity and didn't like that very much. Why won't the morgtage company rent to me? Why won't they talk to me? Why are they eviciting ME? I have cancelled checks to prove I DID THE RIGHT THING. Don't bail the homeowners out who WALKED AWAY. Don't do it. If someone walks away due to negative equity, don't let them off the hook. That is irresponsible on every level. Hey....let's all go to Vegas, max out our credit cards. If we win, no problem....but if we lose....just don't pay the credit card bill. It's not our fault we suck at gambling,.... Isn't that what is happening here? Isn't that what people did? the "flippers"? This thing about homeowners in trouble????? Excuse me, what about the renters they stole from?

Posted by: Deborah at February 10, 2009 6:17 PM

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