Fannie Mae Announces "Deed For Lease" Program

In a continuing effort to blunt the impact of foreclosure on families, Fannie Mae has announced a program called “Deed for Lease” (already shortened to “D4L” in industry publications). Deed for Lease allows a homeowner to a guaranteed one-year lease (aka rental agreement) priced at local market rates for voluntarily signing over the property to the lender. The new program improves on a less formal initiative Fannie Mae started last January that let foreclosed homeowners to stay in the house on a month-to-month basis.

The policy is aimed at minimizing the disruption caused by foreclosure proceedings, which put the family out on the street when the property is seized by the lender. With Deed for Lease, the family loses ownership, but can stay in the house. Put another way, they can walk away from the loan without walking away from the house, as they must do in a traditional foreclosure.

"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 big advantage of the program comes from the money households save when they swap mortgage and other housing expenses for a rental payment. The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification.

Some stipulations of this program are:

• The homeowners cannot be eligible for a mortgage modification
• The new rent payment cannot be more than 31% of the household’s income
• Lease is for 12 months, with the possibility of becoming month-to-month

The questions arise what will happen at the end of 12 months. This does give the homeowner some time to begin to recover financially. On a positive note, it may give the homeowner some time to recover their credit and buy back the property at a reduced price if they can find the cash to make the purchase. Time will tell how this affects our market and if the homeowners who couldn't make the mortgage payment can make the rental payments.

Useful links for more information:

Fannie Mae Deed for Lease Information
Center for Economic and Policy Research
http://www.fanniemae.com/newsreleases/2009/4844.jhtml?p=Media
CEPR Report on Gains from the Right to Rent