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Encinitas, CA 92024
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Jim Klinge
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Posted by on Nov 5, 2009 in Bailout | 35 comments | Print Print

Details on D4L

hat tip to AL for sending this along, from the WSJ:

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.

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.
 
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.

The following program eligibility criteria must be met:

1.  The mortgage loan is a first lien mortgage loan secured by a one- to four-unit property. All property types are eligible. Second lien mortgage loans are not eligible.

2.  The mortgage loan is not guaranteed or insured by a federal agency (FHA, HUD, VA, or Rural Development).

3.  The borrower resides in the property as a primary residence or has leased the property to a tenant who uses the property as a primary residence. Second homes or vacation homes are not eligible.

4. At least three payments have been made since origination or since the last modification.

5.  At the time of the referral to Fannie Mae for the D4L, the borrower is not 12 or more payments past due on the mortgage loan.

6.  The borrower is not involved in an active bankruptcy proceeding and is not a party to litigation involving the subject property or the mortgage loan.

7.  Marketable title is able to be conveyed (a title insurance policy is required).

8.  If there are subordinate liens secured against the subject, lien releases can be obtained.

9.  The occupant of the property (i.e., the borrower or the borrower’s tenant) has verifiable income. Occupants with no source of income are not eligible.

 
“I’m sure Fannie is hoping that when they sell the properties, the values will be higher,” says David Berson, chief economist for PMI Group Inc., a private-mortgage insurer. “A year from now, we should be a year further into the economic recovery, and housing demand will be stronger…That will allow you to release homes that have been foreclosed upon but not put on the market.”
 
The program could also help Fannie preserve the value of its nonperforming assets because occupied homes are more likely to hold up better that vacant homes. The rental programs also provide some rental income to the government-backed mortgage finance giants.
 
The move by Fannie follows a program by Freddie Mac that began offering month-to-month leases to owner-occupants who had lost their homes to foreclosure. But Freddie continues to market those homes for sale. The Fannie Mae program differs in one important respect: foreclosed homes won’t be listed for sale. In February, both companies began allowing tenants whose landlords had lost their properties to foreclosure to sign month-to-month leases.
 
Borrowers will have to show that the monthly rent is less than 31% of their gross income. The program, which will use a professional management company to handle maintenance, will allow borrowers to renew their leases on a term or monthly basis and properties that are sold during the lease period will include an assignment of that lease to the new owner.
 
So far, around two-thirds of owner-occupants who have been offered monthly leases by Freddie Mac have taken them, and the break down of owner-occupants to tenants who have rented under the program is roughly two-to-one.
 
Freddie Mac says it is considering whether to extend longer-term leases to some troubled homeowners. “We’re looking into our options because there are certain markets where there’s just so much inventory on the market,” said Ingrid Beckles, senior vice president of default asset management at Freddie Mac.
 
In recent months, some industry analysts have been puzzled over why more homes haven’t been put up for sale as the rate of borrowers who default climbs higher. Well-intentioned efforts to keep families in their homes have led to delays that some analysts believe is prolonging the mortgage crisis by creating a “shadow” inventory of pent-up supply that will ultimately hit the market.
 
That has prompted some to question the logic of keeping homes off of the market at a time when demand for bank-owned properties has been soaring. The number of foreclosed properties for sale in Las Vegas, for example, has fallen to a less than three months’ supply, according to SalesTraq, a local real-estate research firm. But housing demand typically falls in the winter, and the number of foreclosures continues to grow. “We’re past the peak of when you would want to sell,” says Mr. Lawler.

 

35 Comments

  1. I really dont see why someone would want to rent their home back from the bank.I think this is definitely a bid to buy time and keep more properties off the market.What a mess wall street has created for this country.Yet they are getting record bonuses.Something is real phony here.

  2. Is this constitutional? Is any of the last year’s bailout? Anyone want to fund a class action against the government?

  3. Whether Fannie/Freddie is looking at the micro by reading RE blogs, or macro and seeing things like the Case-Shiller index go up 3 months in a row, WHY do they think we need more bailout programs??

    WHY don’t they see an “improved” market as a time for off-loading?? Are they going to keep-and-rent forever?

    Any Fannie/Freddie bailout won’t help California much either, with most of the toxic loans from here being sold by private-label MBS to Wall Street, not F/F.

  4. I think Fannie is looking at their own books and trying to figure out how to stop the bleeding…

    http://www.calculatedriskblog.com/2009/11/fannie-mae-189-billion-loss-requests.html

    “Total nonperforming loans in our guaranty book of business were $198.3 billion, compared with $171.0 billion on June 30, 2009, and $119.2 billion on December 31, 2008. The carrying value of our foreclosed properties was $7.3 billion, compared with $6.2 billion on June 30, 2009, and $6.6 billion on December 31, 2008.”

  5. My favorite headline today:

    “Avoid foreclosure: Rent your own home”

    Do you get to be your own landlord? What sort of security deposit do you have to put up?

    This is all turning from an epic disaster into an epic joke!

    On a side note, we recently spoke with our landlord about a reduction in our rent. He was happy to do it and even gave us his unsolicited comments about how f’d up the rental market currently is.

  6. I own a suspicious property in the middle of no where. I qualify for this program. I lost my job 18 months ago so I also qualify for Section 8 now.

    Can I rent my house to section 8 tenants who grow weed to fill medical perscriptions?

    –Curious

  7. Up to date, but underwater so not eligible.
    That’s easy fixed..!!
    Another stupid decision.

  8. I love when people talk as if time in isolation will heal the economy. “Recessions only last two years, the market will be better a year from now.” Good luck with those houses Fannie. I wish I had the same privilege of gambling with other people’s money.

  9. I think most that qualify will take this deal as their credit is destroyed and most rentals require good credit. The big problem is how much money is the taxpayer going to spend to bail the crooked banking industry? We would be well on our way to recovery if they let the big banks go under thrown people out of there homes and just let the market work.We only had 2 to 3 years of bubble prices but the thieves in DC will drag this out for 15 years to save the Bankers who pay big bribes to our elected officials!

  10. Well, Fannie posted another $18.9B loss and has requested another $15B from the taxpayers. They currently have about $200B in nonperforming loans on the books as well. Secondly, who is going to manage all of these properties? It’s not like being a landlord means you just collect rent and that’s it.

  11. I am going to put my resume in to fannie mae and see if I can be a property manager.Pay your dam rent or get a visit from mr constable?This sounds interesting like that show repo man.

    Someone posted about being able to collect rent instead of going through a year w/ no rent due to eviction.This is quite the truth.

    If you do a deed in leiu of foreclosure what does the lender have to do to offically accept that deed? For instance I could record a quitclaim deed w/ the county recorder and then send it to the lender.What if the lender doesn’t want the property.Do they have to accept it?

  12. OK, so the banks have a bunch of properties they can’t liquidate because of solvency concerns. But the properties are not cash flowing which raises another problem altogether. So they devise a plan to keep the homes on the books while generating some cash in the interim. Sounds fine.

    But do policy makers ever think of the 2nd derivative? What’s going to happen when other underwater borrowers who are current on their mortgage catch wind of this program? I figure the discussion goes something like this: “honey, we can shed all of our mortgage debt, lower our payment, and stay in our house…no brainer.”

    strategic default wave –> strategic default tsunami?

    Maybe I’m missing something, but it seems that a major disincentive for a strategic default just got swept off the table — having to physically move from the house. I imagine there are several reasons that explain this: 1) emotional connection to the home, 2) the shame that is involved when the moving vans arrive (neighbors, family, friends, etc) and 3) the stability of the children. Now foreclosure is just a simple financial transaction that has no impact on your living arraingement. And it delevers your balance sheet and saves cash flow to boot!

    Maybe I’m missing something.

  13. Prediction: in a few years, defaulted borrowers turned renters will be offered the option to buy the home back from the government. Probably under attractive terms (price/mortgage rate/etc).

    Do you really think that politicians will have the courage to kick people (I mean victims) out of their “HOME”. No friggin way.

  14. I see many more arson cases in the future…

    Talk about getting F’ed without a kiss?

    Lease your own home? LOL! Only in stupid USA

  15. Great more rental units, will help to push down rents.

    I think other banks are doing the same thing. Talked to a few parents in our sons kindergarden class, they are renting houses and they said they believe they are bank owned.

  16. People got to live somewhere. Turns out these folks were only renting as well.

  17. The U.S. government is now the rental market. What are the implications to investors? Will the feds be a rational player?

    With rents accounting for almost 30% of the CPI calculation, will this be a lever they pull to restrain inflation once it eventually arrives?

  18. Like others say, the a new program in 2 years will offer a buyback to these poor souls.

    But why not just stay in your place for free for as long as possible? It’s a year of free rent, and your credit is probably crap anyway.

  19. This is sh!t

  20. Talk about prolonging the agony!…. Just rip the bandaid off and get this over with. We are all sick of this dragging on.
    People need to have a come to Jesus meeting with themselves and move on with their lives. These people didn’t realize that they were renting from the bank all along? They never owned one brick in these houses. The bank has always owned it. Talk about “owing your soul to the company store”
    You will never get away from the bank if you don’t just face reality and move on.

  21. How long before the deadbeat “home owners/renters” figure out that they can sublease where they’re living to 5-6 people at a higher price and start making a profit?

    How long before that FHA “rental” starts to become a scar on the neighborhood as renters throw parties and park 10 cars on the lawn?

    How long before government starts moving section 8 people into FHA housing to keep them occupied if the original “home owner/renter” takes off.

    All this is coming.

  22. What amazes me most is that some people still believe in the government, that they are and will do the right thing.

    In this day and age, how can anyone not be a pure libertarian or anarchist? Seriously?

    Bad Moon Rising.

  23. I hope my comment goes through. Jim, am I banned from posting?

    With the roll out of all these ‘programs’ month after month it is like going to the ice cream store (if it hasn’t already shut down) wanting to know what is the flavor of the day? Really, how can a home owner perform due diligence to make a decision on what they want to do in regards to when to buy, when to refinance, etc… The unintended consequence is that the system is more complicated more than ever and those that want to make the right choice can’t.

  24. Then it was an ID-ten-T error. My bad.

  25. Great point Shadash. Subleasing would be the market response to any attempt to suppress CPI via rents.

  26. Clearly another stall tactic. The government’s commitment to keeping artificially inflated home values is clear. After this, it will be something else. In May, we’ll hear about the $8k credit being extended yet again. Shadash is probably right in his assumptions. So are 3clicks and many of the other posters here. Negativity is rampant, and for good reason. Home prices should be lower. They are not reasonably affordable, and the government is not allowing the market to naturally correct.

    But at some point I have to accept that this will continue. All I care about is finding a good time to buy. Combine these ploys with the destruction of the dollar and pending inflation, and it won’t be long before I conclude home prices aren’t dropping any further. The ongoing government jackassery just won’t allow it to happen.

  27. “The unintended consequence is that the system is more complicated more than ever and those that want to make the right choice can’t.”

    No they can- they don’t risk. Only invest in what you understand is what smart, filthy rich people not from California have told me.

    On the other hand, buy nor or miss the train is what formerly filthy rich Californians have said.

    Now, who to listen too?

  28. I love it.

    So you’ve started a business and begin having trouble. Wouldn’t it be nice if the Gov bought you out even though you aren’t solvent, and gave you a salaried director position at the firm.. Why would anyone ever start a business again?

    This is a deal of a lifetime, a reward for poor performance. Kind of like 100 million for getting fired on wall st.

  29. Oh, and one more small thing. This absolutely screws over the person who pays the bills on time.

    In their minds, in DC they think you’d prefer house prices to remain up no matter the cost. But that isn’t so. Americans do not like cheating nor being cheated, even if the home they own goes down in value.

  30. ‘No they can- they don’t risk…’

    JimB, you do know I was not referring solely to the question ‘should I buy’? Your statement is trivial and is akin to ‘it’s a great time to buy’. Rather, one simple example (and there are many) is how would a current homeowner decide when to refi, move up/down/lateral or stay put, given the fluidity and abundance of new entitlement legislation and policies that contradict basic principals perpetuating a downward spiral in the guise of ‘well-intended’ intervention? I can see renters coming in droves and the slipping away of a once tranquil, family neighborhood. And I’m not saying all renters are bad.

  31. It’s all good….

    It will all fail:) Cash for clunks, Tarp..etc…

  32. this sounds like survival of the unfittest, almost like in communism. It´s not a good way to get the economy started…

  33. On its face, the D4L program seems to make sense from the lender’s prospective. It 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 financially or credit wise.

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