Lease Back Foreclosed Homes

Fannie Mae announced last week that it will offer one year leases at market rates to borrowers who sign over their deeds in lieu of foreclosure. While this may seem radical, the idea is picking up steam. The damage to a borrower’s credit is less severe when they voluntarily turn over their home instead of allowing the lender to repossess it. It also potentially reduces the damage to the market place when foreclosed properties are dumped into the existing inventory at distressed prices. Homes can be more readily absorbed into the market this way.

Fannie Mae wouldn’t say how many homeowners it expects to qualify for the program, but it has backed plenty of struggling borrowers. The total “nonperforming” loans in its portfolio hit $198.3 billion in the third quarter, it said in financial results released last week.

Now housing advocates and some political leaders say the concept should be expanded further. They hope the government will prod banks to follow Fannie Mae’s lead, and they propose leases of three to five years followed by the option to buy back the home. With millions of homeowners nationwide behind on mortgage payments, the potential pool could be enormous.

Rent-back plans also could help prevent vacant foreclosed homes from creating blight in neighborhoods. “Neighborhood stabilization is key, but you can’t have it if we keep having all these foreclosures, vacant properties, shadow inventory, discrimination against (Federal Housing Administration) lending and investors gobbling up all the properties,” said Kevin Stein, associate director of San Francisco’s California Reinvestment Coalition, which advocates for access to credit.

“To the extent it allows these homes to slowly go back on the market, rather than being dumped, it allows them to be better absorbed,” said Joel Naroff, president of Naroff Economic Advisors in Pennsylvania.

From Jan. 1 though Sept. 30, just 271 renters asked to remain as tenants. An additional 3,500 tenants accepted a “cash for keys” payment to cover moving expenses and a month’s rent.

In that same period, Fannie Mae properties had 1,996 deeds in lieu of foreclosures, 24,162 short sales and 98,428 foreclosures.

Freddie Mac has offered a more-limited leasing program for foreclosures since March. It offers only month-to-month leases, and it attempts to sell the house during the renters’ occupancy.

While this strategy will not work for everyone, it is another way to think about your property if you are struggling to pay the mortgage or your home is significantly under water (the home’s value is less than the mortgage).

Courtesy of the
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/11/11/BU7R1AI704.DTL&type=realestate