Five years on from the worst of the foreclosure crisis, lenders Fannie Mae and Freddie Mac still own close to 200,000 homes not yet on the market. For each one, there’s paperwork, inspections, repairs, and sometimes tenants. Lenders have become landlords and property managers. But how are they doing?
1139 Adams Boulevard in Los Angeles looks like a foreclosed home. Most of its windows are boarded up, and there’s a tall chain link fence outside. But 17 people live here. And in the yard, there’s a brand-new kiddie pool.
For the last three years, Elva Moran and her family live in a converted garage tacked onto the back of the house. The landlord split the home illegally into three units. Two years ago, things began to go downhill.
“They cut the power. They cut the water,” Moran says.
Moran’s landlord went AWOL with a utility bill over $10,000. But LA is short on cheap housing, so Moran and her neighbors stayed.
“My daughter had to start doing her homework in the car,” says Moran.
It turned out the mortgage hadn’t been paid either. Fannie Mae had foreclosed on the property two months before the utility shutoff, but it hadn’t notified the tenants.
“One morning,” recalls Moran, “people showed up with papers and started taking pictures. They said we had 15 days to leave.”
Since then, Moran and her neighbors have been fighting Fannie Mae’s eviction with the help of a tenants rights group. But they’ve dealt with three management companies and two sets of lawyers without a resolution.
“Lenders aren’t set up to be owners of real estate,” says Richard Green, Director of the Lusk Center for Real Estate at USC. “They don’t know how to manage the management companies.”
But lenders are indeed landlords, with hundreds of thousands of tenants. Nearly half of people living in foreclosed homes are actually renters. Green says bad loans are what got lenders in this position in the first place. Even so, Fannie Mae isn’t the only one responsible.
“The person who’s most to blame is whoever the original borrower was,” says Green.
That person, Moran’s old landlord, is nowhere to be found. So, where does that leave Fannie Mae?
“It just may not be in their interest to come to any resolution, they’re better off ignoring it, not having the tenants pay rent.”
And waiting until house prices go up more. Stan Humphries, chief economist at Zillow, says processing foreclosures quickly means hiring more staff, and that’s expensive.
“They view this as a short-term issue that’s gonna go away,” says Humphries. “And they don’t want to ramp up only to ramp down again after that.”
From a business perspective, he says, lenders’ top priority is selling off homes that are already in good shape, the houses they know will sell quickly.
“But then there are homes that do require some significant work. And there, I think you do see some slow-pedaling,” notes Humphries.
Fannie Mae declined to comment. At 1139 Adams, the tenants are suing for damages. The electricity is back on, but the rest of the house continues to fall apart. Six months ago, a new management company took measurements to replace some boarded up windows. At this point, Elva Moran can’t help but laugh about it.
“They took pictures,” she says, “but they haven’t come back.”
Whatever happens, the tenants are committed to waiting it out.