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Exciting news on the housing front: Effectively nationalized mortgage lender Fannie Mae has adopted a new policy to deal with foreclosures: Letting homeowners remain in their homes as renters instead of kicking them out and abandoning the property, as happens in many foreclosures.
"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "This new 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."The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.This is really excellent news. Foreclosures are a source of economic problems not just for residents who become homeless but also because property values decay, hurting the broader housing market. Many people have advocated adopting this policy for some time, including our own Dean Baker, as it became increasingly clear that the central program designed to prevent foreclosures, Treasury's Making Home Affordable, hasn't been working nearly as well as it needs to be to have real effects on the crisis. Of course, given that Fannie requires tacit approval from government regulators for any major decisions (since taxpayers own the firm), you'd have to think someone in the administration had a hand in this ...
-- Tim Fernholz
