banktime.com

Under the terms of a new government program designed to assist struggling homeowners who cannot receive succor elsewhere, Fannie Mae will allow defaulted mortgagers to stay in their homes under the terms of a rental agreement for at least one year. The plan, designed to keep a glut of foreclosures from happening and the resulting distressed properties from inundating the housing market, is scheduled to be unveiled to the public today under the “Deed for Lease Program” name. Borrowers who fail to qualify for other forms of assistance will be permitted to hand over the deed to their home in exchange for the right to rent it from the government for twelve months. Homeowners who might receive relief under the DLP are those who failed to either complete the terms or qualify for a mortgage modification under federal guidelines. The distressed homes will be rented to the erstwhile owners for “market value” rents, which will in almost all situations be lower than the monthly mortgage burden for these consumers.

Fannie Mae held off on speculating as to how many struggling families might be helped under this plan, but the lender’s vice president of equity investments was nothing but positive during a press release during which the details of the plan were rolled out. Keeping people in their homes is “better for the community,” as well as for the banks that hold the loans on these properties, said Jay Ryan. Cutting back on the volume of foreclosures and forcible evictions will hopefully stabilize the communities in which these properties exist, maybe preventing more troubles from resulting. Fannie Mae acquired some fifty-seven thousand properties through foreclosure in the first half of this year. That’s on top of an estimated six thousand properties nationwide that it cannot manage to unload, representing a combined value of over six billion dollars in real estate. With the housing market thoroughly saturated in many areas of the country, the rental scheme will ostensibly allow Fannie Mae to hold back a glut of bank-owned properties that would otherwise molder on the market and speculate on investors’ hopes that the market will be stronger and more robust within a year, and there will be buyers for these homes. Obviously, the hope is that these homes will be worth more in a year as the market slowly rebounds and Fannie Mae will have a nice little stockpile of non-foreclosed upon, saleable homes ready to release. It’s a known fact that occupied homes hold their value much better than vacant ones do, and that unoccupied properties present an expensive and real security risk for both lenders and the neighborhoods in which they are situated. Plus, renting the houses provides a monthly source of income to the lender. So really, when you add all these reasons to the major perk of families being spared eviction from their homes, everyone benefits to some extent under the plan.

Borrowers will not be eligible for the rental program unless they have missed at least one mortgage payment. The bank holding the loan on the house will need to show the government that the homeowner is either ineligible for or has previously failed at obtaining a modified mortgage under Obama’s mortgage relief plan. Fannie Mae’s rental plan is considered a progressive improvement on the Freddie Mac rental plan on which it was modeled. The Freddie plan also allowed occupants to rent and remain in their homes after a foreclosure, but it made the homes available for sale and the defaulted owners able to be evicted at the point if and when the property sold. The Fannie plan is safer for owner-occupants, since the house will not actually be listed for sale for at least a year. The two plans come several months after a policy change in February that allowed renters whose landlords had been foreclosed upon to carry out the terms of their leases on a month-to-month basis.

Borrowers will be considered eligible for the rental conversion plan if the market rent on their home will be no more than thirty-one percent of their gross income. Fannie Mae has already contracted a professional management company to handle maintenance on the homes. When the year of renting comes up, the bank and homeowners will have the option of renewing the lease on either a term (six or twelve months) or monthly basis, with the option of the lender selling the home. If the home is sold during the process of the lease, the lease will be assigned to the new owner who must abide by it for the length of the contract. To date, two-thirds of troubled owners offered leases by Freddie Mac have taken them; there is reason to believe that Fannie Mae’s program will enjoy a similar rate of acceptance. Freddie Mac has announced that it is considering offering longer lease terms to owner-occupants in areas where the housing market is thoroughly saturated and there is just way too much competitive property on the market.

These programs have been in development for some months and were kept under wraps on a trial basis to see how thongs would progress. Experts now have an answer to why default rates have continued to climb, but why there has not been a steady increase in the amount of properties owned by banks and for sale on the market. There are those naysayers who disapprove of banks keeping distressed homeowners in their homes for too long, since their theory is that these held-back properties will have to eventually hit the market and will only prolong the housing crisis that much longer when they do. Demand for bank-owned homes has been steadily high, so why keep more in-demand properties off the market?

The answer is that the Obama administration remains committed to keeping consumers and families in their homes with the hope of avoiding the distress and heartbreak caused by foreclosure and eviction. Fannie Mae and Freddie Mac have been charged with the primary onus of carrying out these objectives on the government’s behalf, and will continue to work within those idealistic parameters until instructed otherwise.