As the sun broke through a bank of gray clouds one recent September morning in Dorchester, a glimmer of hope filled a small group of protestors.

A Massachusetts constable had been expected to show up at the door step of Martin Ovalles to evict him from his three-story Victorian at 9 a.m. It was now past 10 a.m. and the constable hadn’t budged from his vehicle parked nearby. The protestors—about 20 strong—formed a tight circle on a sidewalk in front of Ovalles’s home, holding up signs and chanting slogans such as “Five, Six, Seven, Eight, Don’t Evict, Negotiate.”

Alas, it was not to be.

At about 10:30 a.m., the constable handed Ovalles a restraining order, prohibiting him from setting foot on the property that had been his home the past five years.

Cash-strapped, Ovalles had fallen behind on his mortgage payments.  “The bank was putting a lot of pressure on me to move out,” said Ovalles, a security guard at Emerson College’s Boston campus. “They got their wish.”

The protestors, members of City Life Vida Urbana, a local community action group, were pressing for a relatively new concept in the unfolding housing crisis—instead of evicting the homeowner, have the bank rent the home to him, after repossessing the property. The rent would be set at a more affordable rate—based roughly at today’s housing market prices and on the tenant’s income.

The concept, called “right to rent,” has caught the attention of some of the nation’s top policy makers and lawmakers. Last November, Fannie Mae, the government-controlled mortgage financier, issued a directive strongly recommending the practice. And a bill that would allow owners of moderate-value homes facing foreclosure to remain in their homes as renters is currently pending in Congress.

Advocates argue that the rental option would keep people from becoming homeless and also help stabilize falling home prices. Empty or boarded up homes invite vandalism, which in turn makes living in the neighborhood less attractive and lowers the value of surrounding properties.

At a conference in Washington last month, Federal Reserve governor Elizabeth Duke suggested that renting to families be considered “among the mix of stabilizing strategies,” particularly “at a time of high unemployment.”

But the idea is getting off to a slow start.

The Center for Economic and Policy Research, a Washington-based think tank, which has been tracking the renting trend nationwide, estimates that families of approximately 440 Fannie-backed homes have been allowed to stay on as renters following foreclosures, said Alan Barber, a think tank spokesman. The number of foreclosures is in the millions.

Renting to delinquent owners can be a high-risk proposition. Such people typically have exhausted all their savings trying to save their homes, are weighed down with credit card and other debt, and suffer from bad credit—as a result of the foreclosure. Thus, if banks want to rent a foreclosed property, analysts say, they are more likely to seek tenants that are financially better off.

David Grossman, a Harvard law professor who has worked on behalf of numerous homeowners in foreclosure trouble, said he has found a general unwillingness among lenders to lease to a former homeowner. “I know of only one in which the lender agreed to enter in to a lease with the former homeowner and the owner was a disabled war veteran,” he said.

A right-to-rent bill was passed in Massachusetts in July, but the new law protects only tenants of homeowners and not homeowners themselves. The original bill, drafted three years ago by a group of Harvard Law School students, would have allowed homeowners to continue living in their homes after foreclosure as renters. But the bill, sponsored by Sen. Susan Tucker, a Democrat from Andover, underwent several revisions and the homeowner protection clause was dropped along the way.

The new legislation prohibits banks from repossessing property from tenants being evicted as long as they pay rent and refrain from harming the property. Under the Massachusetts law signed last month by Gov. Deval Patrick, tenants will be allowed to stay until the banks are ready to resell the property.

The federal government also has yet to fully embrace the idea of renting to foreclosed homeowners. City Life Vida Urbana is currently fighting the pending evictions of four Boston families from foreclosed properties. Their homes are federally insured—meaning that the banks get paid the full mortgage by the government in the event of delinquencies. But the federal Housing and Urban Development agency, which runs the program, currently requires that banks evict occupants of foreclosed properties as a condition of payment.

Steve Meacham, a City Life Vida Urbana organizer, said that his group was preparing to hold a noon-time protest in front of HUD’s offices in downtown Boston but called off the event after HUD agreed to reconsider its eviction policy.

Lemar C. Wooley, a HUD spokesman, said the agency is “reaching out to the lender, who would foreclose and evict the borrower, to take no action until we have time to review the situation.” Wooley added: “We care about families and will do everything within our ability to resolve this issue promptly and hopefully without disrupting the lives of the families involved.”

For many banks, renting to a foreclosed homeowner is less attractive financially. They must often rent the property at rates that are far below the monthly mortgage payments of the homeowner.

For instance, the Fannie Mae program called “Deed for Lease” requires that the rent not exceed 31 percent of the homeowner’s gross income. In many foreclosure cases, half or nearly all of the homeowners’ monthly income was going toward the mortgage, industry experts note.

“In theory these types of programs are very good for home owners, but in my experience banks do not respond well to these types of transactions,” said Avi Liss, a Brookline attorney and foreclosure specialist.

Liss also said that “banks do not utilize these transactions primarily because they deem it as a form of fraud.” By giving homeowners a break, the banks worry they would be encouraging others to act similarly. 

For Ovalles—the Emerson security guard—there was some hope that he’d be allowed to stay in his home as a tenant.

Over the past nine months, many had come to the aid of the 45-year-old Dominican Republic immigrant. In a series of hearings in Massachusetts Housing Court, starting last winter, two Harvard law professors argued on his behalf. They said they thought they had made some headway in August when Massachusetts Housing Judge Marylou Muirhead suggested that the lender allow Ovalles to stay in the home in exchange for a rent of $800 a month. Ovalles had been paying a mortgage of about $4,000 a month before slipping into foreclosure. His monthly pay is about $2,000. Ovalles said he was hoping to pay for most of the mortgage with rental income, but reliable tenants were hard to come by.

Elyssa B. Slater, an attorney representing Deutsche Bank National Trust Company, the mortgage holder, agreed to consider the proposal, according to Grossman, the Harvard law professor, who argued on behalf of Ovalles at the hearing. But Deutsche Bank apparently decided against doing so, and proceeded with last month’s eviction. Slater declined to comment on the case, as did Muirhead.

Lee D. Goldstein, a Harvard Law School instructor, who also assisted Ovalles in the case, expressed dismay at the bank’s action. “The bank is refusing to take Ovalles’s money,” he said. “They’d rather throw him out on the street. It doesn’t make any sense.”

The right-to-rent effort comes at a time when the housing crisis is showing no signs of easing and government officials are trying to place controls on the number of foreclosures which are approaching new highs. Last week Massachusetts Attorney General Martha Coakley joined a growing list of state law enforcement agencies that have requested moratoriums on all foreclosure activities. The request by Coakley’s office was made to four of the nation’s largest banks including Bank of America, Wells Fargo, J.P. Morgan Chase and GMAC Mortgage. In thousands of foreclosures, some lenders have allegedly signed documents without reading them, in contradiction to statements made in affidavits. 

Last month, RealtyTrac Inc., a foreclosure data research firm, reported that the number of repossessions of homes, or foreclosures, was the highest it’s been for the month of August since the collapse of the US housing market three years ago.

Banks repossessed 95,364 homes in August, up 25 percent from August 2009. The August 2010 foreclosure figure marks a 4 percent increase from July, which also marked a record number for the month, according to the research firm based in Irvine, Ca.

In Massachusetts, the number of foreclosures in August also was the highest since the housing bubble burst. More than 1,011 foreclosures were recorded in Massachusetts, a near 36 percent increase, according to the research firm in Irvine, Ca.

“The housing market problems are far from over. In fact, we’re smack dab in the middle of the foreclosure cycle,” Daren Blomquist, a RealtyTrac analyst, said.

Blomquist said that, on a nationwide basis, an estimated 3.2 million homes are expected to be involved in some stage of foreclosure in 2010.

Ovalles is now living in a two-room apartment in a small brick building in Roslindale. He sleeps on the second floor, right above a Mexican restaurant on the ground floor. “It’s always noisy,” he says. The apartment is also at a busy street intersection. Diagonally across the intersection is the Boston Fire Department. “When the sirens go off, it can get crazy,” he says.

His rent is $900 a month.

(Arwa Sultanali is a second-year graduate student in the Journalism Department at Emerson College. This article was written as part of a directed course on explanatory business journalism. The project is supervised by Emerson College adjunct professor Joseph Pereira who edited the stories.)