Fannie Mae to Allow Borrowers to Lease Their Homes

homeforrent1Fannie Mae announced a plan on Thursday that will allow borrowers facing foreclosure to lease their homes. The program, called Deed for Lease or D4L for short, allows borrowers facing foreclosure to hand their deed to the lender in exchange for paying the market rate rent on the home for at least 12 months.

To qualify for the program, borrowers have to have mortgages insured by Fannie Mae, be unable to qualify for President Obama’s mortgage modification program, and be unsuccessful renegotiating with their lenders. While eligible borrowers would have to voluntarily give up the deeds to their homes, they would be able to stay for at least a year, providing that they paid the market rate rent. Rents would then be renewable on a month-to-month basis. Eligible borrowers must document that the new market rate rent is no greater than 31% of their gross income to qualify for Deed for Lease.

The Deed for Lease program is an extremely interesting and valuable way to keep delinquent borrowers in their homes, or merely to allow time for a transition. The program may be especially valuable for families with children, whom they do not want to remove from their schools in the middle of the year. It will help give families more time to come up with options. It will also help underwater homeowners– especially in areas that have seen property values drop significantly.

Furthermore, since tenants of qualifying borrowers are also eligible for the program, Deed for Lease will help tenants whose landlords face foreclosure. As a result, it appears that, though Fannie Mae provided no estimates for how many borrowers will be eligible for the program, Deed Lease looks to be a promising alternative to severely delinquent borrowers with Fannie Mae loans facing foreclosure–and for their tenants.

More information about the program can be found at www.efanniemae.com.

 

Taking in a Renter to Help Pay the Mortgage or Increase Income

An article in the Wall Street Journal today focused on a noteworthy new phenomenon: more homeowners are taking in renters.  In some cases, homeowners are taking in renters in homes they still live in as a way to help make ends meet. In others, homeowners are becoming landlords, renting out homes they are unable to sell. This seems to be a popular option when the homeowners are forced to make a quick move- especially in the distressed real estate market. While to qualify for a reverse mortgage, a single family residence cannot be a rental property, nor can any portion of it be a rental property, renting out a home may be a good option for those who do not qualify for a reverse mortgage, but need the income from their home.  In addition, multi-family homes with separate apartments may be rented and still qualify for a reverse mortgage as long as the homeowner continues to occupy the home.

There are some additional costs that come with being a landlord.  Landlord insurance is about 25% higher than homeowners insurance, and landlords who use property manages may wind up paying them 3-12% of the rent.  However, a tenant can be a good source of income, helping homeowners be able to continue to afford mortgage payments or break even on a property.  When homeowners need to relocate in a short time frame, taking on a tenant helps alleviate the financial burden of paying for two mortgages at once (or a mortgage and rent).