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Freddie Mac Forecloses on Homeowners, Plans for Evictions Amid Moratorium

By Dawn Kopecki

Jan. 15 (Bloomberg) -- Freddie Mac continues to pursue legal action to evict tenants living in foreclosed properties, drawing fire from legal aid groups who say the moves violate the spirit of a moratorium the company agreed to in November.

While Freddie and Fannie Mae have suspended sales of foreclosed properties and aren’t locking people out of their homes, the mortgage-finance companies continue to initiate court cases against homeowners and pursue existing cases, according to Brad German at Freddie and Brian Faith at Fannie. Freddie is also still filing eviction proceedings against renters, while Fannie says it has suspended all action against tenants living in repossessed homes.

The government-sponsored enterprises seized by regulators Sept. 6 agreed to suspend “foreclosure sales” and evictions through this month after regulators urged them to help struggling homeowners modify mortgages to reduce payments. Legal aid attorneys said Freddie, unlike Fannie, is sowing confusion among renters because it hasn’t halted all legal action against them.

“The new filings send the message that Freddie Mac doesn’t want to work with them and causes immense fear, stress and instability,” said Amy Marx, a staff attorney with the New Haven Legal Assistance Association in Connecticut, who works to keep owners and renters in their homes. “People think they’re being evicted.”

McLean, Virginia-based Freddie and Washington-based Fannie announced the foreclosure and eviction moratorium on Nov. 20 for six weeks and later extended it through this month.

Suspending Sales, Evictions

Freddie “has ordered its national network of mortgage servicers and foreclosure attorneys to suspend all foreclosure sales and evictions,” the company said in its November statement.

“The actual sale, the actual eviction has stopped, but the process continues,” German, the Freddie spokesman, said yesterday. “The moratorium does not affect the normal process of legal filings. But no one is being evicted, the homes are not being sold,” he said.

In dispute is whether Freddie is following a different policy from its counterpart Fannie by continuing to take legal steps toward tenant evictions.

“We are not evicting anybody -- renter or owner -- during the moratorium, and we are working on policies similar to those announced by Fannie,” German said today in an e-mail.

Fannie spokesman Faith said in an e-mail today that his company is “not undertaking eviction proceedings, filings, court cases, etc. with regard to renters in our foreclosed properties.”

$12 Trillion U.S. Market

Fannie and Freddie, which own or guarantee almost half of the $12 trillion U.S. home-loan market, were taken over when regulators found the two were at risk of failing after posting record losses in the worst housing decline since the Great Depression. The Treasury pumped $13.8 billion into Freddie in November to keep it solvent after the company posted a $25.3 billion loss for the third quarter. Fannie, which had a record $29 billion loss, said it may need Treasury aid after it reports fourth-quarter results next month.

Fannie had an inventory of almost 70,000 foreclosed properties at the end of the third quarter, while Freddie held about 30,000.

Fannie and Freddie are offering residents facing eviction “cash for keys” to vacate foreclosed properties, and Freddie has said it is working on a new tenant policy that it expects to have ready before the end of this month.

‘People Feel Powerless’

“The tenants, meanwhile, still have to defend these cases,” said Stephanie D’Ambrose, an attorney for Greater Hartford Legal Aid in Connecticut, a non-profit group that provides free legal advice for the poor. “People feel very powerless. A lot of people will move out or take cash for keys without knowing that come February 1 they will have an opportunity to get a lease.”

By contrast, Fannie has worked to halt court proceedings against tenants and notify them that they may be eligible to stay in their homes if they agree to sign a new monthly lease at market rates, according to Marx and D’Ambrose.

When cases have fallen through the cracks and court action continued, Fannie is “literally sending people out to knock on doors to make them aware of the policy and, when they’re not home, we leave flyers with information about their options,” said Faith, the Fannie spokesman.

-- Editors: Larry Liebert, Joe Winski

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: January 15, 2009 20:17 EST
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