Friday, November 6, 2009
Very Interesting times "Deed for Lease??"
Meet Your New Landlord: Fannie Mae Deed for Lease Program
November 6th, 2009 Linda Slocum Posted in Foreclosures and Short Sales, Santa Clarita Real Estate |
Borrowers who don’t qualify for other loan workout programs to be offered new Deed for Lease option.
Fannie Mae has announced a new Deed for Lease Program (D4L) where distressed homeowners who cannot qualify for other loan workout solutions will be able to trade their deed for a market-rate lease. While this seems just peachy on the surface, in many areas this may mean HIGHER payments for many borrowers, where lease rates are higher than what their modified mortgage would be.
In order to qualify for the program, homeowners must be able to show that they can make the lease payments by documenting that the monthly rental is no more than 31 percent of their gross income. Huh… seems if they could do that, then they probably wouldn’t be in trouble with their mortgages in the first place, especially in high-rent areas like the Santa Clarita Valley!
The property itself must also qualify for the D4L program, with the following limitations:
* If there are expensive repairs to be done, the property may not qualify for the program.
* If the HOA or zoning in an area prohibits rentals, then Fannie Mae will not be able to rent the home back to the current homeowner. Seems if there is already a tenant in the property in violation of the HOA or zoning rules, then the tenant would automatically be evicted.
* Fannie Mae may opt to forego the rental option if the market rent is not enough to cover ongoing maintenance and management costs.
For the homeowner or current tenant to qualify for the D4L program:
* Homeowner or tenant must be able to document that the proposed rent is no more than 31 percent of their gross income.
* Property inspections must show that the homeowner or tenant are maintaining the home in good condition. [Many distressed homeowners allow homes to fall into disrepair, allowing children to do things like using Magic Markers on the walls.]
* The occupants signing the lease must agree to a credit review and all occupants over the age of 18 must have an acceptable background check, including receiving clearance from the Office of Foreign Assets Control (OFAC)
* There must be no signs of criminal activity in the house. [I'm assuming this means drugs?]
* The home must be used as the homeowner’s or tenant’s primary residence.
It appears that this program is more geared towards keeping tenants in investment properties than it is to keep homeowners in their homes, since tenants are often displaced without much notice when the bank forecloses on a rental property. The new Fannie Mae leases will be for 12 months, with possible extensions on a month-to-month basis after that.
Fannie Mae’s VP Jay Ryan says of the Deed for Lease program, “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 initial concept of this program was released in January 2009, and at that time it appeared that the properties would be foreclosed upon and that the maintenance of the rental properties would fall on the Realtors® assigned by the bank to handle those REOs. The new wording appears to indicate that Fannie Mae would be responsible for hiring management companies to handle the T&T’s (tenants and toilets) instead.
So who benefits from this new program? Likely the existing tenants will to some extent, at least if they are already paying rent at near-market rates and they’re keeping the properties in good condition. Seems the biggest winners in the D4L program will be the management companies selected to maintain this new crop of rental properties.