Fannie Mae to Rent Foreclosed Homes Back to Borrowers

By NICK TIMIRAOS   The Wall Street Journal

"Fannie Mae plans to allow homeowners facing foreclosure to stay in their homes and rent them for up to one year as part of the latest effort to help troubled borrowers while keeping a glut of foreclosed properties from hitting the housing market.

The Deed for Lease Program, which Fannie plans to roll out on Thursday, will offer borrowers who fail to complete or don't qualify for a loan modification or other workout to deed their property to the lender in exchange for a lease. Borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments."

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"Fannie Mae wouldn't say how many homeowners it expects will take advantage of the program. 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.

"If you keep more people in their homes, it's better for the community. It's better for the financial institutions that own those homes," says Jay Ryan, vice president of equity investments at Fannie Mae. "Hopefully less foreclosure product on the market will help stabilize those communities."

Borrowers who haven't missed any mortgage payments aren't eligible for the program, and the borrower's mortgage servicer would have to show that a borrower isn't eligible for a loan modification before the homeowner could apply for the Deed for Lease program."