This is big news.
The Deed For Lease program could significantly impact the real estate market and many people’s lives, depending on how it is implemented.
Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.
I don’t know what it takes to qualify for this program but it would be a gift from the heavens for many families. The market rent in many cases will be far lower than their current payments, (principal, interest, taxes, insurance, HOA fees and maintenance). And they don’t have the costs and disruption to the family of moving out. It seems like it could be the ideal solution for many families that got in way over their heads.
Anybody know how a “deed in lieu of foreclosure” effects someone’s credit rating and ability to borrow money compared to a short sale or foreclosure? Is it treated the same as a foreclosure? Or are its effects less than those of a short sale?
This program will cost Fannie Mae a fortune. (What else is new?) But they may not be able to afford it for long so check it out ASAP if you might qualify. The first important question you have to answer is, “Does Fannie Mae hold your mortgage.”
Here’s the take from the Washington Post.
The plan is expected to be particularly attractive in places like Phoenix or Orange County, Calif., where homeowners are stuck paying large mortgage bills on properties that are now worth far less than they originally paid. At the same time, rents have been falling in those areas. So by renting the same house, former homeowners could wind up paying far less every month.
In the first nine months of the year, Fannie Mae took ownership of nearly 2,000 properties through a process known as a deed-in-lieu of foreclosure. That pales in comparison to the 90,000 foreclosed properties the company repossessed in the period.
Here’s another take on the Deed For Lease program.
“To the extent that this initiative helps alleviate homeowner pain and leads to better borrower cooperation with DIL proceedings, it should marginally expedite buyout timelines by increasing the share of DILs at the expense of foreclosure sales.”
And that article says Fannie Mae may try to sell the property back to the renter (former owner) somewhere down the line! Current homeowners can’t beat that.
I gotta think about all this but my first impression is that this is a spectacular program for many folks who are severely underwater and who have Fannie Mae mortgages.
I just wonder how many people will qualify for the program.
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azrob 11.08.09 at 11:38 am
More cheerleader interpretation…John you really need to put the pompoms away.
First off, WE the taxpayers own Fannie, we are already tossing tons of money down this blackhole, and the biggest losses still to come are being hidden by a policy of “extend and pretend” accounting. So unless you like bankrupting our country to pretend housing is ok, this is another in series of actions to pretend everything is ok.
1. landlording is a serious hard business. It is tough for us that do it locally to make it work, do you honestly think its going to turn out to be a profitable decision for the “competent” folks in DC to do it?
2. They will be robbed by local agents managing properties. “Hello, fannie, the home needs a new roof for $5000″… and then hire a friends company to do it for less., Hello rental management fraud!
3. Fannie is betting on prices being higher in a year. Maybe, but given they have only barely stabalized with billions of aid, there is a fair chance prices start sliding again, when the training wheels get taken off housing. So, to compound a lousy rental income, we will likely get lower values in a year or two.
4. who sets the market rental rate? with 10% vacancies, apartment complexes throwing 2 months free a year at almost anybody with a pulse, merely comping the rent from the mls is going to be a fools rental price. The family who accepts the lease may decide in a few months that they can do better, and quit paying the rent. (or buy a home in a cousin/ new spouse name, and simply move out)
All of these problems and for what? to DELAY putting the homes on the market for a year? who cares… it makes no difference to the long run market dynamics.
summary: bankrupt fannie will merely find another way to lose more taxpayer money here.
John Wake 11.08.09 at 1:53 pm
azrob,
My point is that the program could be spectacular for some homeowners, not that it was good government policy.
But now that I think about it, it could be good government policy as well.
Fannie is a government agency in all but name. Fannie is burning government money hand over fist.
The key point is, “Will this program cause Fannie to lose more or less money in the long run?” I don’t know. But I think it’s plausible the program will make it lose slightly less astronomical amounts money.
When the market was falling, it made sense to foreclosure and sell ASAP.
Now that the market has bottomed out in many areas, it makes sense to delay selling for 2 reasons; 1) Prices might be higher in 1, 2, 3, 4 or 5 years, or whenever Fannie sells, and 2) Fannie is such a big source of foreclosures that if they lowered the number of their foreclosures hitting the market, that would help support home prices and lower Fannie loses.
A potential huge downside is that the program could evolve into a backdoor public housing program with politicians using this potentially enormous stock of homes to promote their favored political objectives. It could become the golden goose throwing off huge amounts of rental income cash to be fought over by politicians and the politically connected.
BTW, I heard a rumor that Fannie is going to contract out all of it’s property management nationwide to one company to coordinate.
azrob 11.08.09 at 2:16 pm
so after 3 years of throwing everything but the kitchen sink at housing: Bailout Fannie, Bailout Freddie, FHA bailout, FED buying every mortgage backed security in sight to keep rates low, Mortgage foreclosure moratoriums, FHA programs to refinance loans, making home affordable program, and tons more I can’t even remember, after a trillion dollars the new solution is: drumroll: give up on the home and rent? Is this a freaking joke? That option has been available since day one! quit paying the mortgage, move out at foreclosure and rent!
Oh, but the family doesn’t have to move! Hey great! that will save an $60 rental at Uhaul and a day of driving back and forth with some new friends from guadalupe!
There is zero chance in hell this isn’t yet another “innovation” of fannies that turns into a huge financial loss. This rental market sucks, I have rentals, I might buy more, but at prices that price in the risk, and I manage them myself, not paying “one big company” oh that will work out well!
Plus, starting with a group of tenants who have now gotten used to not paying each month for a place to live, sounds like a great cohort to start a rental business with!
And, at the end, fannie will still sell the homes; a home sold is a home sold, it pressures prices down today, or next year. NO DIFFERENCE to the longterm supply/demand of housing on the market;
take it from an optometrist and mathematician, this is a bad gamble. If you think otherwise, I’ll sell you my home today for a bubble price, and rent it from you at market rent!
azrob 11.08.09 at 2:27 pm
oops spell check got me econometrist… not optometrist! but i can see housing clearly!
John Wake 11.08.09 at 2:33 pm
I love the juxtaposition of all the homebuyer programs you list and then, “give up on the home and rent? Is this a feaking joke?”. Well said.
JR of Sun City Real Estate 11.08.09 at 6:12 pm
I think this program would give those people who are bound for foreclosure a relief but the question would be, for how long could they afford to pay that? given the economic situation right now, I only hope that they could sustain to pay it religiously.
MPS 11.09.09 at 4:30 am
azrob you saved me some typing so I’ll just add…. We’re toast. We’re done. Effed. This is the stupid desperation. Gold –> $2000 Dow –> 6000. Within a year….I’ll betcha. Housing prices will drop another 20% or more. There will be NO ‘V’ shaped recovery. With each fucktard program like this we are digging ourselves a deeper hole.
Get your amo and shit ready cuz who knows what 2010 is gonna bring us.
John Wake 11.09.09 at 9:23 am
MPS, Wow! I think you may be exagerating for effect.
Here’s a scenario. Let Fannie fail. And start a new government sponsored entity to do the same thing.
Of course that would have cause home prices to fall faster (but since we’ve fallen most of the way already…). It would tick off the Chinese and other foreign investors, and it would hurt all the U.S. banks that invested in Fannie. So the government instead decided to pick up all those losses from Fannie and Freddie when all we really need is a source of money for new home purchases to keep the market moving. The government could set up a new Fannie-like entity without all the boat anchor loans. Let Fannie eat their losses and sell off their portfolio of loans at 50 cents on the dollar and the new buyers of those loans can make money without government pumping in billions upon billions.
MPS 11.09.09 at 10:25 am
I hope I am exagerating. One thing that I know for sure is that you can’t get out of debt with new debt and you can’t reinflate popped bubbles. The fed is trying hard to blow up the housing bubble and doing quite well at blowing up the securities bubble. However, I will admit it is very hard to predict anything near term with how much government intervention is controlling the markets. Dow–> 6000 Or Gold–> $2000 sometime before 2011…what odds will you give me on that? This is a train wreck in slow motion.
Rich 11.09.09 at 10:27 am
John is right about one thing: this would be a spectacular deal for a TON of underwater home owners. You take the strategic default scenario where the upside-down owner who can still afford their mortgage decides his/her credit rating isn’t worth the tens or hundreds of thousands of dollars they owe.
Now, you remove the hit to the credit rating, you remove the stigma of being foreclosed, you remove the inconvenience of having to move, kids changing schools etc., you remove having to accept a smaller or otherwise non-ideal rental unit, you remove the difficulty of finding a rental with a poor credit rating.
I could go on.
This program would encourage a huge wave of new defaults, many of which wouldn’t have defaulted at all if not for this program. In fact, I’d guess that, depending on the details of the program, this would make financial sense for somewhere around 85% of underwater home owners. Heck, this would even make sense for quite a few people who AREN’T underwater if the market rent is much lower than current mortgage+ payments. Paying a thousand or two extra a month eats into your equity pretty fast.
If every owner who this makes sense for was allowed to participate and did, we could be looking at #’s in the hundreds of thousands of homes in the Phoenix metro converting to government owned rentals.
Of course it will never get that far, obviously many of the mortgages aren’t owned by Fannie, many people won’t participate even if makes financial sense and the program no doubt will not run smoothly as advertised.
If this program passes, I would encourage anyone in this situation to jump on it fast, it won’t last long. This is your chance to play investment bank for a day and fleece the tax payers.
John Wake 11.09.09 at 11:24 am
MPS, I heard all the government borrowing and spending described as “trying to drink themselves sober.”
Rich, yes, I agree the Deed For Lease program could encourage people who are struggling to make the payments and who would have likely bailed out in the future anyway, to advance their plans and bail out now. It depends on how it is implemented.
Richard Stabile New Homes 11.13.09 at 5:56 pm
I think it is a good idea. In many markets the foreclosures are over whelming. The people have to live somewhere. All these homes cant be sold at once. Back in the Great Depression many people did the same and rented back from the banks. Some managed other properties and when times got better, they bought the houses back again.