Inundated by thousands of homeowners on the brink of losing their homes to foreclosure, giant U.S. Mortgage Investor and Guarantor Fannie Mae has created a program that will allow many of those who face losing their home the opportunity to lease them for up to one year. For most distressed homeowners, that's a far better option than being evicted.
As reported by Nick Timiraos in last Thursday's Wall Street Journal, the new Fannie Mae Deed for Lease Program began last week. It allows the former homeowners, now tenants, to pay a market rent to lease their home for up to twelve months from the day agreement is reached with the lender. Rents would be set at market - in many cases, the new monthly housing payments would be considerably lower than the previous mortgage payments.
Fannie acquired roughly 57,000 houses through foreclosure during the first half of 2009. It's total package of Real Estate Owned now stands at 63,000 distressed properties. Their estimated value - $6 Million!
If the rental program proves successful, Fannie Mae would keep additional foreclosed home inventory from an already saturated distressed property market. Hopes are the market will be stronger at the end of the lease term, and the organization could sell these houses at a higher price one year down the road.
According to Jay Ryan, Vice President of Equity Investments at Fannie Mae, fewer foreclosures on the market will also help the neighborhoods and communities in which these homes are located.
Under the program, the homeowners lender or mortgage servicer would have to prove that the borrower would not be eligible for loan modification or workout programs. Those current in their house payments would not be eligible for the Deed for Lease Program.
Fannie Mae also believes occupied homes would remain in better condition than those turned over, vacant, in foreclosure. The program would also provide some rental income to Fannie, rather than the guaranteed monetary drain of vacant, foreclosed homes.
Earlier this year, Fannie Mae began offering month-to-month leases to some owner occupants who lost their homes to foreclosure. Those foreclosed homes, however, remained on the selling block. This new program takes them off the market during the one-year lease term.
To qualify for the program, former owners will have to establish that the new rent amount will be less than 31% of their adjusted gross income. The one-year leases could be renewed month-to-month at the end of the term, but will return to the market at that time. Houses sold to buyers at that point would receive an assignment of any remaining portion of the lease.
Professional management companies would handle accounting and maintenance tasks.
Freddie Mac, the other major U.S. Mortgage Guarantor and Investor, is considering a Deed for Lease Program for homes in its portfolio - they have some success renting month-to-month to former owners, rather than foreclosing.
Please read our post today via BlogChicagoHomes.com.
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