Smart foreclosure policy keeps renters in homes

MORTGAGE giant Fannie Mae offers a smart and compassionate plan to keep renters of foreclosed properties in their homes.

Other lending institutions would be wise to follow suit, this time with a plan to allow renters living in foreclosed properties — who can pay their rent — to stay in their homes.

Sibling company Freddie Mac has a similar effort in the works. The two own or guarantee about half of the $11.5 trillion in outstanding U.S. home-loan debt, adding heft to their rescue efforts. An estimated 2.2 million Americans are vulnerable to foreclosures because they took out subprime-mortgage loans. Hidden within the numbers are thousands of renters who stand to lose homes despite paying their rent.

Here's how the new policy works: Renters who can pay their rent would be allowed to sign new leases with lenders while the property is up for sale. Renters continue to have a roof over their heads. Rent payments allow lenders to recoup at least some of their costs.

The alternative is mass evictions; these have proven not to work. For one, many of those evicted are low-income renters and finding new, affordable housing presents a stiff challenge.

Properties left empty blight neighborhoods, inviting graffiti and other crimes. Abandoned homes take on an unappealing aura of neglect certain to push down the values of nearby homes. Banks incur significant expense in trying to maintain an empty home or building after a foreclosure.

The solution is to keep buildings occupied until they can be sold.

A further reason to go down this path is that an occupied building, one where tenants are paying the rent, is one less building that doesn't have to be rushed into a fire sale. Down the road, when the building is sold, the new owner may honor the lease. Or at the very least, tenants had shelter for a little longer and the bank holding the mortgage received rent.

Fannie and Freddie last month suspended foreclosure sales on occupied single-family homes and evictions from those properties through the holidays until Jan. 9. That action should help 7,000 to 10,000 families remain in their homes.

Banks and state lawmakers searching for ways to assist renters ought to see Fannie Mae's new policy as a model. Amid the gloom of record foreclosures, creative solutions like this one shine.