Avoid foreclosure: Rent your own home lol..

[cjbory]

I cant belive it. Why would I rent my own home for 31% of my salary if i can get the same house some place else for less money than that.

NEW YORK (CNNMoney.com) -- Giving troubled borrowers yet another way to avoid foreclosure, Fannie Mae said on Thursday it would allow eligible homeowners to rent their own homes.
The Deed for Lease program lets homeowners transfer the deed back to their lender and then sign a lease to remain in the home. The effort is aimed at borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification. Borrowers must live in the home as their primary residence and must be released from any subordinate liens.
The program aims to reduce the number of foreclosed properties being abandoned because they often fall into disrepair and hurt the surrounding homes' values. Also, it keeps a roof over troubled borrowers' heads and a steady stream of income coming from the property. Tenants of homeowners may also be eligible for leases.
"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," said Jay Ryan, vice president of Fannie Mae, a mortgage-guarantee firm under federal government control.
Homeowners must show they can afford market rent, but that payment cannot be more than 31% of the borrower's pre-tax income. Leases may be up to 12 months, with the possibility of renewal or month-to-month extensions. If the property is sold, the new owner picks up the lease.
"It really buys them time," said Paul Habibi, real estate professor at UCLA's Anderson School of Management.
Stopping foreclosures
But in the long-run the program only delays the inevitable sale of the distressed properties.
While this initiative is not part of the Obama administration's loan modification program, the White House is leaning heavily on Fannie Mae and its sister firm, Freddie Mac, to assist in stemming the foreclosure crisis.
Freddie Mac launched a program in January that allowed borrowers to stay in their homes on a month-to-month basis after they go through foreclosure.
Despite the government and financial industry initiatives, foreclosures hit an all-time high in the third quarter. During that time, 937,840 homes received a foreclosure letter -- whether a default notice, auction notice or bank repossession, according to RealtyTrac.
Last month, Treasury officials announced that 500,000 troubled borrowers have been put into trial modifications under the president's plan. The program calls for eligible homeowners to pay no more than 31% of their pre-tax income toward their mortgages.
At the same time as it tries to ramp up its loan modification program, the administration is looking for ways to help those not eligible for adjustments. In May, officials unveiled a program to incent borrowers and loan servicers to participate in short sales and deeds in lieu. Under that initiative, borrowers get up to $1,500 to assist with relocation expenses and Treasury pays servicers $1,000 when the deal is completed.
Short sales, in which the home is sold for less than the mortgage balance and loan servicers may forgive the difference, and deeds in lieu, in which borrowers voluntarily forfeit the deed and the debt may be erased, are faster and cheaper than foreclosure.

[Evan Bedard]

Wow I cannot believe the programs the gov't comes up with. Why in the world would somebody want to rent their home when all they need is a little help lowering their interest rate.

Thank you for sharing cjbory.

[sahm2two]

This is funny....We have a mortgage of $1,700 (pre-trial mod) and the homes around here...the most we could rent would be $1,200-$1,250 (pushing it!) So we would still be in the hole and have to find a place...& can't really go smaller than what we have...1,300 sq ft!

[Housebroken13]

there is no way they will be able to properly manage the thousands upon thousands of rentals they will have.

I would sell via a short sale before handing the deed over if they asked me to rent. That's insane!

This is simply desperation on their part, they already almost got de-listed from the NYSE for the low stock price for FNM.

I want to know what they would do when the lease expired at the end of ht year, would they allow you to repurchase the home at the lower market value.

JUST START LOWERING PRINCIPAL BALANCES ALREADY!!!!!!

[davephx]

The lease back actually is a good idea for some people that can not afford the home but need time to "transition". I congratulate FANNIE for creative thinking. No, for us that desperately want to keep our homes it is not a option, but for some it is. As Fannie itself says it will only help a few people (will maybe a few hundred thousand).

But could be made better, by allowing folks with too low income to qualify for a mod to have a year to get the higher income. Yet the Treasury/Fannie wants to be protected by owning the home in the interim.

A better solution as Housebroken13 suggests is either:

1) Rent to own, where after the 1-year you can buy the house back but not have to have the usual qualifying only the 31% income test.

2) Better yet if the servicer/investor is willing to do a short sale for $$$, than why not simply reduce principal for current owner to the amount they would take on a short sale. But that would be too easy! Better yet use the NPV test to come up with a short sale value and reduce principal to that amount.

The short sale value would probably me quite a bit higher than the foreclosure value the NPV Test now does, after taking into account the foreclosure discount, legal and holding costs till sale etc. But it could result in principal reduction for current owner combined with the 2%/40 yrs. Actually this is exactly what HAMP is trying to do, but the principal reduction is optional and virtually never done.

I can think of all sorts of ways to make something work for the benfit of both the owner and Treasury (via Fannie) but they didn't ask me.

[BadBobMo]

JUST START LOWERING PRINCIPAL BALANCES ALREADY

Now as you can see things are getting worse and you will see more and more of this BS type of revisions from Timmy/Shelia and The Bankers. It all started when when they turned tail and ran from then on the BK-Bill. So if you don't want to be a renter for the rest of your life you need to speak up for "Write Downs" period.
I've been on this BS from day 1 when the shit hit the fan when my and yes your home started dropping in price "Thousand of $$$ a day! Now I watch my good brothers and Sisters wait and wait to pay double what their homes are worth, and the sad thing is to no fault of your own!
Keep Awake and fight for what's yours.

[nativelasvegan]

I too would congratulate Fannie on the creative thinking to continue to take advantage of homeowners. Although the lease back may be a viable option for some, there are several disadvantages with this theory. If the people who are thinking of this as an option, please do check to see what other similar properties are renting for. For a rental amount to be based on what you make is a new take on the leasing market. I am a leasing agent. In my opinion, it is simply another way for the government owned Fannie Mae to make a buck. However, if the rental rate is comparable to what you can get in the OPEN market, then by all means, it is a good option to take advantage of. How a homeowner can "transition" from being a homeowner to a renter is going to entail a lot more than paying more than market value. Not saying that a rental of your own home at 31% of your income will be more, but do your homework and find out how much it will be to rent comparable properties. Gotta love the underlying good heart of Fannie don't we? They want to give us a year to get higher income? How likely is that? With unemployment levels at their highest. The banksters not modifying loans which result in even more foreclosures, the so-called "stabilization of the housing market" via TARP to banks, I am sorry but I do not see any stabilization in the economy for quite some time. Although I am an optimist at heart, the current figures reflect that a decline will continue and to think that we will be able to increase or earnings to get higher income is ludicrous, at best. Fannie Mae wants to be protected by having someone rent their investment properties in the interim until more foreigners flock to the US to buy up our properties at a discount.

Just my opinion.

[davephx]

nativelasvegan The leaseback is UP TO 31% not above market rent for the area.

[daytona1]

Actually I've been thinking for some time that it might be better for the banks to do the Deed in lieu and rent back to the homeowners for a market rate. Think of the expense of foreclosing, the many, many months (or years) of no payments, the homes falling into disrepair, stripped out appliances, etc, etc.

If some homeowners had a chance to hand over their deed and rent it back with the agreement that they would need to maintain the home...like mow the grass, etc I betcha many would take it. This would help the banks by having something coming in for income, an occupied home, and not having to force sell into a bad market. If the borrower is in a deficiency state then most are going to have to file a bk anyway due to the significant losses they are going to be responsible for when the home gets dumped...IE, the banks are going to eat the losses anyway.

The homeowners....or tennants would be like any renter...responsible for damages and would be evicted for non payment of rent. A few years down the road (if) the housing market recovers, the banks could sell the home for a likely better price. Maybe some of the homeowners would have recovered enough to even buy it back...who knows.

I think the major problem to this approach for starters is so many mortgages are packaged up and sold, secondarily I think it would be an accounting nightmare for the lenders.

[wattsm]

I remember reading a crazy story a few months back about a guy who let his home go into foreclosure, then bought it back from the bank for much less than he had previously owed, thereby achieving a substantial reduction in his principle.

[tiredofwellsf]

Ha! Some realtor suggested we rent our home OUT for 950$ a month. She knows our mortgage is 1268$ a month BUT she said, we would not have a HUGE defecit...and we could still own the home as an investment!! WOW some folks are really smart!

[nativelasvegan]

Give Fannie Mae money? Sorry but I just don't get leasing your home through the same crooks who took it. I know there is a huge expense to move. Security deposits, pet deposits, etc.
If I am going to have to lease a home, you can bet your butt I will not give my rental payments to the very entity who just foreclosed on me.

[Garry]

I've put serious thought into this rent thing, I don't think it would bother me at all, beats having to move.

[ftm2hannah]

Does anyone know if Chase is doing this? I would seriously consider it as our house will be auctioned soon.

TIA

[Sparkss]

Originally Posted by davephx

The lease back actually is a good idea for some people that can not afford the home but need time to "transition".

I agree completely. In our instance the thing that I lose the most sleep over is not being able to plan any moving events w/o just abandoning our home (and still needing to keep up the insurance, liabilities, etc). W/ a lease we wouldn't stay beyond the initial terms, but it would give us a firm timeline to coordinate and schedule around. But then again that is just my desire (need) for some control in an otherwise uncontrollable situation. That would be worth a couple of months of elevated rent payments (compared to perhaps renting another residence aside from our own). Just my $.02.

I have not read the full text of the plan, but I wonder how that would work w/ COD and recourse/non-recourse (judicial vs non-judicial) ?

[Garry]

Here is the problem I see with renting the houses back. Someone has to be responsible for the repairs if any are needed. It would have to offer either a very long lease or a more than fair shot at saving the home in the long run for any ex-homeowner to accept this responsibility.

[Garry]

A 100 year lease would do the trick. I doubt our homes will ever be worth what most of us owe. What used to be our most valuable asset has turned into a junk bond. I will most likely be dead before I pay my house off and I got screwed when I bought it. Where do I sign the lease, I'm all in.