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.

 

The Difficulties of Mortgage Modifications on the Front Page of the WSJ

The front page of today’s Wall Street Journal featured a touching article about the difficulty of getting a mortgage modification.  We have stated the facts in this piece many times, including the crucial fact that 9% of 45 million American homeowners were delinquent on mortgage payments in the first quarter of 2009. Yet, only about 500,000 loans have been modified thus far, leaving at least 3.5 million people without a much needed modification. It has also been stated often that a modification is hard to come by.  While the article goes into more specifics, the stories of piles of paperwork and miles of red tape are already widespread.

Given what is clearly a problem, I wonder if there is not some solution that would do a better job of solving these issues. If a customer has applied for a mortgage modification, is getting stuck in red tape, and there is already a glut of houses on the market, why not order a temporary halt to the foreclosure until the situation can be resolved? It is hard to believe that it is a best practice to penalize a customer for the bureacracy surrounding the new programs that Obama has created (as well as existing ones that are seeing a surge of interest).

As the article pointed out, there are many parties with stakes in a foreclosure. The lenders and investors care about the outcome of an overdue loan as well. However, harried bankers and servicers need to be given the time to adequately resolve these claims. Unfortunately, as more and more homeowners head into foreclosure, time appears to be sorely lacking.