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'Own-To-Rent', The New Emerging Mortgage Plan
July 17th, 2009
What does it mean? It
didn’t make sense upon first hearing the term ‘Own-To-Rent’
since many of us are so familiar with the popular term,
‘Rent-To-Own’.
U.S government officials are polishing
up a new weapon to tackle the foreclosure crisis. They are unleashing a new
program called ‘Own-To-Rent’ and they’re trying to implement
it nationally. The new proposed ‘Own-To-Rent’ which has not been
officially announced will literally convert homeowners and borrowers into
renters. It sounds crazy but could it work?
Officials say that 15 to 20 million out of the current 52 million mortgages will be underwater. The government loan modification and refinance program that was announced early March 2009 had failed to aid many struggling homeowners. Lenders and loan servicing companies who were short-staffed were not prepared with the overwhelming demand thus causing slow-bumps to the frustrating loan modification process. Read our recent related story: Obstacles To The Loan Modification Program.
Under the
‘Own-To-Rent’ plan, homeowners who are behind in payments will have
the option to return home-ownership to the lender in exchange for renting the
home for a set determined amount of years with an option to buy the home in the
long-term. The rental payment will be set to fair market and significantly
lower than the current mortgage payment that the borrower cannot afford. Should
the borrower demonstrate the ability to make rental-payments for several years,
the borrower will be given the opportunity to repurchase the home.
The overall goal of the
proposed plan will allow borrowers to make affordable rental payments and keep
families in their homes with no disruptions to vacating. This can be a win-win
situation for both borrower and lender as it will prevent more properties from
flooding the housing market thus adding more pressure to declining home prices
nationwide. Currently, there is an enormous incentive for homeowners to walk
away from their homes and hopefully if this new program is installed, it will
allow families to remain in their homes.
Critics to the plan asked
whether banks will end up becoming landlords and how they will cope with
handling complaints in regards to resolving maintenance issues within the new
converted rental properties. How will various state laws come into play when
evicting a renter who fails to make rental payments under the new proposed
‘Own-To-Rent’ program? For example, it may take 20 days to evict a
tenant in Phoenix while it may take up to 3-months in Los Angeles. Landlord and
tenant laws are not uniform from state-to-state.
Hurdles to the program
regarding lenders taking the role of a landlord mentioned above have not been
officially addressed. As for handling maintenance, the bank or lender may
consider allocating a small budget to hiring a 3rd party maintenance
company to address all renter needs. As lenders receive rental payments, they can
set a side a budget to contract the services of a local management or
maintenance company to resolve any maintenance issues. This of course has not
been confirmed by any government officials. If they can figure out how to
overcome the above hurdles, the ‘Own-To-Rent’ program can
potentially be very attractive as it will save banks from the high-costs and
losses associated with foreclosing homes and allow families to remain in them.
Currently, many abandoned
foreclosed homes are not well taken care of with some intentionally damaged by
the previous occupiers out of rage of losing their homes to foreclosure.
Officials are also
considering whether to help struggling homeowners pay part of the mortgage
payments by tapping on the unused portion of the $50 billion housing aid kitty.
Part of this plan will involve unemployed homeowners or borrowers to receive a
housing stipend along with unemployment benefits.
Comments
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