The New Deed for Lease Program Hits a Neighborhood Near You
By Cindy Jones on November 8th, 2009Back in August 2009 I pondered Should a Distressed Homeowner Get to Rent Their Home Back from the Lender? when the first hints of the proposed “Deed for Lease “ program were announced.
This week Fannie Mae formally issued the “Deed for Lease” (D4L) program guidelines which allows qualifying homeowners facing foreclosure the opportunity to voluntarily turn in the deed to their home in exchange for the chance to stay in the property as renters.
Per Fannie Mae : “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.”
Now anyone who keeps up with the news regarding loan modifications knows that the lenders have not been responsive to the “Making Home Affordable Program.” In fact a CNN report states: “Bank of America has only offered 4% of eligible homeowners trial modifications under the plan. Wells Fargo doesn’t fair much better at 6%. JP Morgan Chase is doing a bit better. Chase has provided 20% of eligible mortgages trial modifications, but when you think about it, saying 20% is better is actually pretty bad. That means 80% of eligible homeowners are not getting trial modifications.”
Think about this for a minute.
If one of the qualifications for the new D4L program is that homeowners have not been able to get a loan modification from their bank, does this mean that Fannie Mae is going to become the landlord for 80% of current distressed homeowners? Since this program is government backed it seems to me that every taxpayer in the US is about to become a part of the largest property management firm ever.
Recently my clients were considering offers on two short sales, when I asked the agent about the status of the process, the agents stated the homeowners were trying to work out a loan modification with their lenders. If they are unsuccessful will they now qualify for the new progam and stay in their homes versus completing the short sale? This could have an interesting impact on our local inventory and I wonder how many short sales may now be pulled off the market while more homeowners try to qualify for the new D4L program?
It seems we are only delaying the inevitable release of D4L properties back on the market as foreclosures. With the recent extension of the tax credit for buyers into April 2010 the timing of the D4L program makes no sense. Instead the homes will come on the market in 2011 when the tax credit is gone and the government will have to come up with yet another incentive to figure out of how to deal with a new glut of inventory.
On its face, the D4L program seems to make sense for Fannie Mae. The program eliminates much cost in the foreclosure process and fighting from the homeowner. However, from the Debtor or home owner’s side, the only real benefit that I see is that the displacement of the occupant is simply stayed for 12 months, with no real opportunity to redeem the property. It is unlikely that at the end of the 12 months the occupant will be in a better position relative to their credit score or financially.
It makes sense for them until they need to start evicting tenants who won’t leave at the end of their lease. These families have an emotional tie to their home that most renters don’t.
The property management costs may outweight what the foreclosure costs might have been. It is a wait and see proposition.