Q&A: How To Rent Your Home From Fannie Mae

Fannie Mae announced Thursday that it will let troubled homeowners rent their homes instead of losing them through foreclosure and eviction. The new program is aimed at providing greater home security to distressed borrowers who can’t afford their mortgage payments and can’t get a loan modification, but would be able to afford the rent.

The program is structured so that borrowers transfer their property deed to Fannie, a process known as a deed-in-lieu of foreclosure. A deed-in-lieu will ding a borrower’s credit score, but it isn’t as damaging as a straight-up foreclosure, even though the end result is the same: Fannie gets back the property. Fannie completed around 1,200 deed-in-lieu transactions during the first half of the year.

In the new “Deed for Lease” program, borrowers must qualify for a deed-in-lieu under Fannie’s current guidelines, and if they can demonstrate that they have enough income to pay a market rent, they’ll be able to sign a lease for up to 12 months.  Here’s a few question and answers about the program:

How do I know if Fannie owns or guarantees my loan? Fannie Mae has a loan look-up Web site that lets borrowers see whether their loan is held or backed by Fannie, and therefore eligible for the program. Mortgages backed by the FHA and other government agencies don’t qualify.

Can homeowners qualify for the program if they’re current on the mortgage? No. The program is open only to borrowers who have missed a payment and who therefore can show that they can’t afford their current mortgage payments. A borrower’s mortgage servicer must also show that the borrower isn’t eligible for a loan modification. Potential tenants have to demonstrate that market rent wouldn’t exceed 31% of their monthly gross income, and borrowers who are 12 or more payments past due on their mortgage aren’t eligible.

Could borrowers-turned-tenants buy their home back when the lease expires? Unlikely. Fannie says that at the end of the initial lease term, they may choose to extend the lease or “offer for sale to any qualified home buyer.” Most borrowers who have recently missed mortgage payments and executed a deed-in-lieu probably won’t have strong enough credit or enough cash to be able to buy a home.

Can borrowers intentionally default in order to be eligible for the lease program? Again, it’s unlikely. Fannie says that “borrowers would not qualify for a deed-in-lieu, and therefore not qualify for a deed for lease, if it is determined that they can afford their current mortgage payments.”

Are there any other restrictions? Second lien mortgages aren’t eligible, and any subordinate liens secured against the borrower must be released. Borrowers can’t be involved in an active bankruptcy proceeding and aren’t parties to any litigation on the property or the loan. Properties also couldn’t be rented if rented homes would violate zoning or homeowners’ association rules.

Who will manage the properties? Fannie Mae has contracted with a national property management company to handle maintenance and property management. Here’s a full list of rules and regulationsFannie’s FAQ, and a page that includes borrower instructions for the program.

Borrowers would not qualify for a deed-in-lieu, and therefore not qualify for a deed for lease, if it is determined that they can afford their current mortgage payments.


Congress giving homebuyers a big new tax break

The Unemployment Benefits bill in the House of Representatives, H.R. 3548, has passed. The bill contains an amendment to extend and expand the homebuyer tax credit. The bill passed the House of Representatives by a vote of 403-12. The bill will go on to the President for his signature. The existing tax credit and the new version of the tax credit, chart we have The Santa Clara County Association of REALTORS® congratulates all of our members who took the time to respond to the national call for action on the extension and expansion of the housing tax credit. About 1.4 million first-time homebuyers had qualified for the credit through August. The Realtors estimate that 350,000 of those buyers would not have purchased their homes without the credit. The real estate industry, including Realtors, home builders and mortgage bankers, have lobbied hard for the expanded tax credit. Lawmakers said the program will not be extended again. Critics say the tax credit is poorly targeted because the vast majority of people receiving it would have bought homes anyway. Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. The credit is equal to 10 percent of the purchase price of a primary residence, up to a maximum of $8,000 for first-time homebuyers and $6,500 for others. Taxpayers can claim the credit on their federal income tax returns. If the credit exceeds their tax bill, the government will issue a payment. Taxpayers who want immediate refunds can amend their tax returns for 2008 to claim the credit


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