Renting Homes Back to Foreclosed Owners

From MarketWatch.com & from The Boston Herald

By Amy Hoak / Marketwatch.com
Friday, November 20, 2009

Mortgage giant Fannie Mae has decided to let thousands of Americans who lose homes to foreclosure rent their properties back.

“This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period and helps to stabilize neighborhoods and communities,” Fannie Mae’s Jay Ryan said in unveiling a new “Deed for Lease Program” earlier this month.

Initiatives 

The initiative aims to help homeowners who either don’t qualify for or haven’t been able to negotiate loan modifications. (Those are deals where lenders unilaterally cut homeowners’ monthly mortgage bills to prevent foreclosure.)

Under the Deed for Lease Program, homeowners facing foreclosure can voluntarily sign their property deeds back to their banks. In exchange, lenders will lease the houses back to former borrowers at market-rate rents for up to a year.

Rental arrangements beyond one year are also possible but not guaranteed.

However, the program only applies to borrowers or tenants facing the loss of primary residences. Second homes don’t qualify.

Consumers seeking Deed for Lease deals must also:

be no more than 11 payments behind;

have made at least three payments since getting or modifying mortgages;

receive releases from any second mortgages or other subordinate liens;

prove that market-rate rents don’t exceed 31 percent of applicants’ gross incomes.

Additionally, the plan only covers mortgages controlled by Fannie Mae.

Fortunately, millions of homeowners have Fannie Mae loans without even knowing it.

That’s because the firm buys up thousands of mortgages each year from lenders that no longer technically own the loans, but keep collecting mortgage payments on Fannie’s behalf.

To see if you have such a mortgage, go to FannieMae.com.

Dean Baker, Center for Economic & Policy Research

Dean Baker of the Center for Economic and Policy Research calls the Deed for Lease Program a “very big step” toward helping people who face foreclosure.

“Families that like their home, their neighborhood or the schools for their children will have the opportunity to stay in their house even after foreclosure,” he said. “This is also good policy for neighborhoods that have been hard-hit by foreclosures. The Deed for Lease Program will keep the homes occupied, rather than being an eyesore and a potential safety hazard.”

Baker does have one criticism: He thinks the guaranteed-lease period should be longer than a year – possibly contingent on timely rent payments and proper upkeep.

“Nonetheless, the new policy by Fannie Mae is an important step forward in dealing with the housing crisis,” Baker said.

The Herald’s Jerry Kronenberg contributed to this report.

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