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Update1: Fannie Turning Borrowers Into Renters

UDATE1: Fannie Mae has released the details to a program that will turn struggling homeowners into renters. The “Deed for Lease Program” (DLP) allows delinquent homeowners to rent their home for up to a year instead of being foreclosed upon.

Instructions for Borrowers

Wisely, Fannie hasn’t yet said how many borrowers are expected to take advantage of the program, but the goal is to delay the sale of foreclosed homes in order to capitalize on rising home prices:

The company acquired 57,000 properties through foreclosure during the first half of the year, bringing its total real-estate owned inventory to 63,000 properties valued at $6 billion. The rental program will allow Fannie to hold inventory off of already saturated housing markets and makes a bet that the housing market will be stronger one year from now.

Eligibility

According to the Wall Street Journal, borrowers who are current on their mortgages will NOT qualify for the DLP. This program is only offered to borrowers who have failed in their existing loans but DO NOT qualify for a loan modification under the Federal program.

Which borrowers would that be? We took a trip over to MakingHomeAffordable.gov to see exactly which borrowers wouldn’t qualify for a MHA modification (hence, qualifying for the DLP):

1. Any loan owned by anyone else besides Fannie Mae. At this juncture, not even Freddie Mac is participating (Freddie has their own program), so it’s Fannie Mae loans only.

2. If your loan was originated after January 01, 2009.

From the WSJ:

Borrowers will have to show that the monthly rent is less than 31% of their gross income. The program, which will use a professional management company to handle maintenance, will allow borrowers to renew their leases on a term or monthly basis and properties that are sold during the lease period will include an assignment of that lease to the new owner.

While Freddie Mac offers month-to-month leases for homeowners who have been foreclosed upon, Freddie markets those homes for sale. Fannie’s DLP doesn’t market the homes for sale when the former owner is still renting.

As the lack of success of the Federal modification and refinance programs have become more publicized, several entities have devised new, and as we said yesterday “interesting,” strategies to battle the nation’s foreclosure crisis. The DLP provides Fannie with an opportunity to collect steady rental income, the opportunity to resell their properties at a higher price given that home values improve by next year) preserving the  “value of its nonperforming assets.”

“This program may help to stabilize neighborhoods hard-hit by the economic downturn,” said HSH VP Keith Gumbinger.

We wonder, though: would someone who takes advantage of this program also be eligible to re-buy the home they once owned but now rent?

Other Resources:

FAQs
Interim Instructions for Servicers
Program Summary

Original post published on 11/05/09