The mortgage giants move is part of an attempt by lenders to keep
a wave of foreclosed properties from slamming a housing market that has
shown some signs of recovery.

Mortgage giant Fannie Mae said Thursday that it would throw a lifeline
to some people losing their homes to foreclosure by allowing them to
lease those properties back for up to a year at market rental rates.

The
move is the latest in a series of steps by lenders trying to manage
inventories of foreclosed homes on their books in an attempt to keep a
wave of properties from slamming a housing market that has shown some
signs of recovery.

The news came as Fannie Mae reported a net
loss of $18.9 billion in the third quarter ended Sept. 30, compared
with a $14.8-billion loss in the second quarter and a $29.4-billion
loss in the third quarter last year.

The latest loss pushed
Fannie Maes government regulator Thursday to request $15 billion from
the Treasury Department. It was the fourth time the Washington company
had drawn on its federal financial lifeline since Fannie and its sister
firm, Freddie Mac, were seized and placed under government stewardship.

By
reducing the supply of cheap foreclosures on the market, Fannie Maes
Deed for Lease Program would add to other efforts by the federal
government to aid the housing market, analysts said.

Jay
Ryan, Fannie Maes vice president of equity investments, said the
program would help to stabilize neighborhoods. The firm said Thursday
that the program would qualify only those borrowers who had exhausted
other options, such as a loan modification.

"If you keep more
people in their homes, its better for the community, and hopefully
fewer vacant homes on the market will help stabilize those
communities," Ryan said. "If someone still wants to live in their home,
be it for the kids wanting to stay in the school district or the family
wanting to remain embedded in their community, this gives them another
opportunity."

The program also would allow Fannie to produce
some income from the properties — many worth less than their
mortgages, or "underwater" in industry terms — as it waits for home
prices to recover.

"This is a very wise business decision
because these loans are underwater, and they are not going to get all
of the money," said Richard Green, director of the USC Lusk Center for
Real Estate. "Fannie has an incentive to keep the homes reasonably
maintained because they are going to want to sell them one day."

Bruce
Marks, a housing activist and critic of the lending industry, said the
program was a distraction from efforts to push lenders to modify loans.

"Their
mission is to provide homeownership and yet now they want to get into
the landlord business. It is outrageous," said Marks, executive
director of the housing nonprofit Neighborhood Assistance Corp. of
America. "The issue has to be to force these banks to restructure
mortgages, not let them off the hook."

Fannie didn’t say how
many homeowners it expected would qualify for the program. To
participate, a borrower must agree to convey all interest in a property
to the lender. The company recorded 1,996 people agreeing to such a
transaction in the first nine months of the year, according to a filing
Thursday with the Securities and Exchange Commission. In California,
Fannie held $475 billion in loans at the end of the third quarter, of
which 5% were "seriously" delinquent.

The home must be a
borrowers primary place of residence. A borrower-turned-tenant would
have to document that the new market rental rate is no more than 31% of
his or her gross income and be released from any subordinate liens on
the property.

The efforts mirror a program by Freddie
Mac of McLean, Va., which offers month-to-month leases to people who
have lost their homes to foreclosure. Tenants must agree to allow the
home to be shown to potential buyers and allow the company to market it
for sale.

Fannies program isn’t for everyone. Some borrowers would be better off pursuing loan modifications or other solutions.

Scott
Hempel, 38, said he was underwater on a home he owns in Riverside but
he has kept up his mortgage payments. Hempel, a production manager for
Dow Jones & Co. in Dallas, said he was forced to relocate to his
new job in October 2007. He tried to sell his Riverside home but the
plunge in home values made it impossible. Hempel said he would like to
conduct a short sale — selling the home for less than the value of the
mortgage — but was told by Bank of America that Fannie guidelines
required him to be in default.

"I could walk away and do what
everybody else is doing, but I am trying to get out of the house
without doing that," Hempel said.

To make matters worse, he said, he will lose his $90,000-a-year job as the plant he works at winds down its operations.

A Bank of America spokeswoman confirmed that Hempel was denied a short sale based on Fannie Maes guidelines.

Complaints
that lenders won’t negotiate with borrowers unless they go delinquent
on their mortgages have been common during the unfolding housing bust
and economic meltdown. The loan modification plan sponsored by the
Obama administration this year was designed to encourage lenders to
reach out to borrowers heading for trouble before they actually
defaulted.

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Times staff writer E. Scott Reckard contributed to this report.