Can’t pay the mortgage? You still might be able to stay in your home. Government-controlled mortgage company Fannie Mae is going to give borrowers on the verge of foreclosure the option of renting their homes for a year.
The change announced Thursday could give a temporary break to thousands of homeowners, but critics question whether it will only add to the mushrooming losses at the company, which has received billions in taxpayer money.
The new “Deed for Lease” program will allow homeowners to transfer title to Fannie Mae and sign a one-year lease, with potential month-to-month extensions after that. It also helps save money because the lender does not need to complete the often lengthy and time-consuming foreclosure process.
The 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,” Jay Ryan, a Fannie Mae vice president, said in a statement.
It also does less harm to the borrower’s credit record.
“It shows that you put your best effort to work out a solution,” said Gabe Del Rio, director of homeownership at Community HousingWorks of San Diego.
However, Mike Himes, director of homeownership services at NeighborWorks Sacramento, said the industry should push harder to modify loans at lower monthly payments. “The preferred option is allowing people to retain ownership,” he said.
Fannie Mae executives said the rental program is designed to help delinquent homeowners who don’t qualify for a loan modification, but still want to stay in their homes.
To qualify, homeowners have to live in the home as the primary residence and prove that they can afford the market rent, which will be established by the management company running the program. Rents are based on current market rates.
The plan is expected to be particularly attractive in places like Phoenix or Orange County, Calif., where homeowners are stuck paying large mortgage bills on properties that are now worth far less than they originally paid. At the same time, rents have been falling in those areas and homeowners may find they are paying far less to live in their home.
In Orange County, for example, the average monthly rent for all apartments was about $1,450 in September, down nearly 8 percent from a year earlier, according to research firm MPF Research. In Phoenix, the average renter paid about $720, also down about 8 percent from last year.
Still, based on a similar program, the effort is likely to attract a relatively small number of homeowners.
In the first nine months of the year, Fannie Mae took ownership of nearly 2,000 properties through a process known as a deed-in-lieu of foreclosure. That pales in comparison to the 90,000 foreclosed properties the company repossessed in the period.
Deed-in-lieu works like the new program, allowing homeowners to turn over title to Fannie Mae, but rather than renting, the owners simply walk away.
While Fannie Mae executives say the company’s motives are community-minded, critics say the company is simply gambling that the properties will eventually sell for a higher price. That’s folly, says Peter Schiff, president of Euro Pacific Capital in Darien, Conn., and a longtime bearish investor.
“Taxpayers are now going to own all these houses that (Fannie Mae) should have unloaded,” he said. “It’s going to cost a fortune.”
Mark Madsen says:
Looks like we better get our property management division staffed up in order to handle the volume of new business from Fannie.
What’s this going to do to:
a) Listing inventory and true market values
b) Listing agents that aren’t in with banks’ REO or Short Sale asset managers
c) Buyers agents
d) Mortgage brokers
At a certain point, it seems like consumers just may end up going straight to makinghomeaffordable.gov for all of the real estate / mtg buying and selling needs.
Is that the plan?
November 5, 2009 — 5:02 pm
Greg Swann says:
It feels like more of the same to me: Holding homes off the market to prevent prices from finding a bottom.
There’s a Realtor in Phoenix who pumps out a sweet little chart of what “reversion to the mean” will look like. It’s a ten to fourteen year journey from here — assuming that there is a mean.
Mortgage interest deductibility and capital gains exclusion were the two big scams by which the Feds sought to make housing seem to be an investment, rather than an exhaustible utilitarian good.
What if the market no longer buys into those scams? That establishes a whole new mean, doesn’t it? Particularly in markets that are already overbuilt.
REO inventories are rising in Phoenix, after months of declining. I can buy a nice 3/2 in Henderson for well under $100K. Clearly the supposed “cures” for what ails us are just making things worse.
November 5, 2009 — 5:27 pm
Tony Sena says:
Guess I started my property management business at the right time 🙂
November 6, 2009 — 11:38 am
Al Lorenz says:
This actually fits in pretty well with the goals of the new Secretary of Housing and Urban Development. He interprets the fair housing act to mean that he can pursue the President’s goal of a “fully integrated society.” In practical terms, he wants low income (government) housing to be required to be built next to high income housing.
Who is to say that the houses will actually be sold in 12 months? This is a great way to bring the projects to nearly every neighborhood. As far as getting to manage the government’s new homes long term, you’ll probably have to be a housing authority or ACORN to get a piece of that action. How many democratic votes can you deliver?
If government wanted extend its tentacles further into taking over the real estate market, can you think of a better way!
November 6, 2009 — 11:59 am
Greg Swann says:
> In practical terms, he wants low income (government) housing to be required to be built next to high income housing.
More on that here and here.
For readers here who want real estate news to be about finger-jointed framing members and twitticisms, my apologies. Unfortunately, real estate today is too much about statist politics, and, as we are wise, we will stay abreast of these overtures to tyranny.
November 6, 2009 — 3:11 pm