Fannie Mae is My Landlord?

Phoenix – Well when you think they have thought of everything, Fannie is now in the Landlord business. However, it does help the struggling homeowners from becoming homeless which is a good thing.

So what does this all mean?

Fannie Mae announced Thursday that it will allow troubled homeowners to lease their homes versus losing them through foreclosure and eviction.

The new program is directed at providing greater home security to distressed borrowers who can’t afford their mortgage payments and do not qualify for a loan modification, however who are able to afford the rent.

The program is designed so that borrowers transfer their property deed to Fannie, this is also known as a deed-in-lieu of foreclosure. A deed-in-lieu will adversely affect a borrower’s credit score, but it isn’t as damaging as a straight-up foreclosure, even though the end result is the same which is that “Fannie gets back the property”.

In the new “Deed for Lease” program, borrowers will need to:

Qualify for a deed-in-lieu under Fannie’s current guidelines;
Demonstrate that they have enough income to pay a market rent, they’ll be required 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 regulations, Fannie’s FAQ, and a page that includes borrower instructions for the program.

Less Foreclosure Notices Filed in October

October showed the third straight monthly decline in the number of foreclosure noticed filed across the valley. The decline is attributed to foreclosure-prevention programs - banks are starting to embrace the concept of working with the homeowner to come up with viable alternatives to foreclosure.

It also has appeared that Arizona has fallen to 4th place in foreclosure filings, trailing Nevada, California, and Florida,

Still, foreclosures remain near record highs and the mortgage industry is still struggling to manage the onslaught. The government has had to push many lenders to participate in the Obama administration's loan-modification plan

Update on Homebuyer Tax Credit

While nothing has been finalized quite yet, I want to make sure to keep you posted on the latest and greatest with the tax credit extension/expansion. As of this morning, the House of Representatives has approved legislation that would extend AND expand the credit. The House vote comes after the Senate voted yes on Monday night and while there is more work to be done, word on the street is that an agreed upon bill should reach the President for his signature by the end of this week. Here’s what has been agreed upon so far:

Under the proposal, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible for the credit. The extension would cover homes under contract by April 30th and closed by June 30th, 2010. The tax credit would also be expanded to non-first time homebuyers as well. There are a few tweaks for these folks though; the tax credit would be reduced to $6,500 from $8,000 AND they must have owned a home for at least five of the past eight years.

Please remember, this is NOT final and even if it is approved, changes could still be made at the last minute. As soon as the final bill has been approved and signed off on, we will be sure to inform you of all the details.