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Deed For Lease
November 11th
2009, Fannie Mae, a housing finance giant now under the control of the U.S.
government has announced a new ground breaking strategy to stem more
foreclosures through a new innovative program called ‘Deed For Lease’.
Quick View
The launch of the new program
comes after 9 months after the
Towards the end of October 2009,
there were significant improvements in servicers as the government proposed a
report card in July 2009 to track servicer performance including Obama’s demand
to modify 500,000 loans by November 2009.
By early October of 2009,
more than 650,000 loans were modified, achieved a month early before Obama’s
deadline. This number represents about 20% of all eligible borrowers. Most of
them enrolled had been chosen for trial period lasting up to 5 months.
According to experts, the
number still represents only a fraction of the tsunami tide of anticipated
troubled loans set to hit as a result of deteriorating unemployment sweeping
the nation and interest ARM resets in 2010. It is simply not enough.
Fannie Mae’s Deed For Lease
Initiative
Announced early November 2009,
Fannie Mae launched its ‘Deed For Lease’ initiative
allowing homeowners on the brink of foreclosure to remain in their homes as
renters.
The program allows a
qualified homeowner to transfer the deed to the lender and in exchange allow
the homeowner to rent the home for up to a year (12 months).
According to Jay Ryan, vice
president of Fannie Mae, this provides an alternative option to homeowners who
were unsuccessful in obtaining a loan modification. Jay Ray said in a statement
that the new initiative will help reduce the uncertainties of foreclosure,
allowing families to remain in their homes during a transitional period. He
added that this will also help to reduce the state of chaos in neighborhoods
and preserve stability within communities.
Loan Requirements
To be eligible for this
program, your loan needs to be guaranteed and owned by Fannie Mae. Not sure if
Fannie Mae owns your loan?
Use this provided tool
to determine whether Fannie Mae owns your loan. If you have determined that
your loan is in fact owned by Fannie Mae and are interested in participating in
the program, you should contact your loan servicer. He or she will then contact
a property manager to determine if you are eligible.
Property Requirements
For property eligibility, the
property cannot be subject to zoning or prevented by other regulations that
would prohibit a ‘Deed For Lease’ swap. The property cannot be violating any
local laws and the cost for any necessary repairs cannot be too costly.
Primary residences may only
qualify. The rental income should be adequate to pay for management and
maintenance costs.
Borrower Requirements
Borrower must have income
that can be verified in order to qualify for the program. The fair-market rent
cannot exceed 31% of borrower’s gross monthly income. Borrower must agree to
maintain the property in good condition and cannot have any illegal activities
occurring in the dwelling.
If you are a pet owner, you
may be subject to getting renter’s insurance.
Fannie
Mae’s Strategy
The ‘Deed For
Lease’ Initiative is designed for Fannie Mae to curb further losses by allowing
it to generate rental income so as to delay the sale of their foreclosed
properties for up to 12 months. This strategy may help Fannie Mae to buy extra
time in hopes that the housing market will improve in a year’s time. However,
there is just no certainty that the housing market will recover by then.
Spurring The Private Sector
To Follow
The launch of this new
innovative program by Fannie Mae
(now currently government owned) is poised to attract private firms to embrace
and launch similar ‘Deed For Lease’ programs.
The private sector will later
realize that if Fannie Mae can do it, so can the private firms.
