Fannie Mae announced yesterday their new ”Deed for Lease Program”. This program will allow troubled borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification to stay in their homes as renters if they transfer the deed back to their lender and then sign a lease to remain in the home.
This program is similar to a Freddie Mac program that offers month offers month-to-month leases to owner-occupants who had lost their homes to foreclosure. The major difference in the programs is that homes that participate in the Deeds for Lease Program won’t be listed for sale for at least 12 months.
Who is Eligible and What are the Requirements?
Borrowers have to demonstrate they can’t afford their current mortgage, but can afford to pay market rent. The payment cannot be more than 31% of the borrower’s pre-tax income. Borrowers must live in the home as their primary residence and must be released from any subordinate liens. The borrower’s mortgage servicer has to show the borrower didn’t qualify for a loan modification. Leases may be up to 12 months, with the possibility of renewal or month-to-month extensions. If the property is sold, the new owner picks up the lease. Tenants of homeowners may also be eligible for leases.
How This Helps?
The Homeowner: It keeps a roof over troubled borrowers’ heads
The Neighborhood: Reduces the number of foreclosed properties on the market which affect the surrounding homes’ values. Homes that have been foreclosed upon typically are not maintained once they have been abandoned.
Fannie Mae: The program will allow them to avoid adding additional bank owned inventory to an already-saturated housing market and it will provide a steady stream of income coming from the property until it is sold.
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It is a great initiative by Fannie Mae. I hope that it will be followed by others.