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Distressed Homeowners May Be Able To Rent Their Homes

Fannie Mae launches new effort to prevent foreclosures

By Mark Huffman
ConsumerAffairs.com

November 6, 2009

"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "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."

The new program isn't for everyone. It's designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

To participate in the program, borrowers must live in the home as their primary residence and can't have any other liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31 percent of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

The new program may be a result of growing frustration over the slow pace of mortgage modifications. Consumers have complained bitterly that lenders appear either incompetent or indifferent, requiring the same documents to be faxed numerous times.

Fannie Mae officials made clear that the Deed for Lease Program is not part of the Obama Administration's loan modification program, but it serves a similar purpose. The objective is to keep homeowners in their homes, neighborhoods intact, and prevent escalating foreclosures.

The latest report on foreclosures by RealtyTrac, a foreclosure tracking firm, shows that government and industry efforts to reduce foreclosures have yet to produce much in the way of results. Foreclosures hit an all-time high in the third quarter, with 937,840 homes receiving either a default notice, auction notice or bank repossession.

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