This Christmas holiday, a number of families will be allowed to stay in their homes for a short while longer. Mortgage giants Fannie Mae (NASDAQOTCBB: FNMA) and Freddie Mac (NASDAQOTCBB: FMCC) have both announced a two-week moratorium on evictions over the Christmas and New Year's holiday. Though the gesture seems benevolent and considerate, does it really mean that much?
A brief respite
From Dec. 18 through Jan. 3, residents of foreclosed single-family homes and two- to four-unit dwellings will be allowed to stay without disturbance from Fannie Mae or Freddie Mac. The moratorium will only stand for actual evictions, as other administrative functions and proceedings will continue during the two-week period. In addition, the local eviction companies will be allowed to continue their administrative duties to prepare for the eviction at the end of the break.
By looking at the most recent data from both Freddie Mac and Fannie Mae, the firms have foreclosed on an average of 58,000 homes per quarter. The two-week moratorium may give up to 11,000 families nationwide the time they need to reach out to friends and family to make new living arrangements.
The moratorium is not a new occurrence for the mortgage giants. Each year they announce the same respite for beleaguered families. Though the families appreciate the gesture, investors shouldn't view the event as a real kindness that would cost the companies anything. Since the administrative and procedural steps will continue on schedule, the only difference to Freddie and Fannie will be the physical acquisition of the foreclosed property.
Though Fannie and Freddie wouldn't be able to sell the foreclosed property before the eviction, that would possibly pose a slight delay for the firms, but the Christmas holiday is historically a slow time for property sales -- giving the GSEs very little downside for offering the moratorium.
Season of giving
Announcing the moratorium has given both Fannie Mae and Freddie Mac the opportunity to give some advice to troubled homeowners. Both firms have expressed their desire that borrowers who find themselves in trouble should seek help as soon as possible. Terry Edwards, chief operating officer for Fannie Mae, said, "We encourage any homeowner who is having difficulty making their mortgage payment to reach out for help right away. Fannie Mae will continue to help borrowers avoid foreclosure whenever possible." Both GSEs have good records of helping troubled borrowers avoid foreclosure, with Freddie Mac saying eight out of 10 borrowers have been able to stay in their homes with the foreclosure alternatives it provides.
Hopefully the extra time the families get from Freddie Mac and Fannie Mae's moratorium will be enough to allow them a happy holiday season. For investors, the mortgage giants' generosity should give you a little bit of the warm and fuzzies, without any concerns about their operations.
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