The newest program in the Federal arsenal to help homeowners who are facing foreclosure is called the Deed for Lease program. Created by Fannie Mae, this program will allow homeowners to essentially become tenants in their homes for 12 month periods (including the possibility of renewal at the end of the lease). In exchange for this right the homeowner will agree to deed the home back to the lender, as well as other requirements. It is basically a deed in lieu of foreclosure, but with substantial benefits to the homeowner.
Here are the requirements in a nutshell:
1. The primary mortgage must be financed by Fannie Mae (they finance about 31 million home loans so there is a good chance they finance yours)
2. Borrowers must live in their home as a primary residence
3. Any secondary mortgage holders must agree to release the borrower from loan obligations (this I see as the biggest challenge to this program)
4. Rental rates will be fixed at market rates but no more than 31% of the renter’s gross income (another potential problem, since 31% of gross income may be less than market rental rates)
As I indicated in the parenthesis above, there are issues with this program that will need to be ironed out. While it sounds great in theory it may not effectively help many. It will depend a great deal on the second lien holders willingness to forgive debt (and if short sales are any indication this may be an issue–the reason many short sales do not go through is BECAUSE second lien holders are not willing to forgive the debt and walk away).
It is clear that the Feds are continuing to try to help struggling homeowners, but to what extent this new program will work remains to be seen. If anything it is another avenue that a desperate homeowner can try.