Fannie Mae Goes Into The Landlord Business
Monday, November 9th, 2009In all the sound and fury about the extension of the First Time Homebuyer’s Credit, you might have missed the news from Fannie Mae. Last Thursday, Fannie Mae announced a new program to allow troubled homeowners a chance to stay in properties threatened by foreclosure. Under the program, homeowners would transfer ownership of the property to Fannie Mae [a "deed-in-lieu of foreclosure"]. Fannie Mae would then allow the [now former] homeowners to sign a lease for up to one year to remain in the property. As you might expect, there are a number of conditions;
- You must have a mortgage owned by Fannie Mae. If you aren’t sure, you can check here to see if your loan is owned or backed by Fannie Mae.
- You must be behind on your current mortgage.
- You can not qualify for a loan modification under current Federal guidelines.
- You must qualify for a deed in lieu of foreclosure under Fannie Mae guidelines
- You must demonstrate that you can afford a market rent. Generally this means that the market rent is less than 31% of your monthly gross income.
- Any subordinate lien [a second mortgage, HELOC, etc] must be released by payment in full or some other arrangement.
This program is similar to one offered by Freddie Mac. The main difference is that Freddie Mac is signing month-to-moth leases to allow homeowners to stay in the home while Freddie Mac finds a new buyer.
Both of these programs will certainly advance the Government’s immediate goal of helping people stay in their homes — at least for a little while. It will, however, make the Federal Government a landlord for an increasing number of properties. Both Fannie and Freddie expect to hire management companies, but it is still one more bureaucracy in companies stretched to the limit already.
The second thing these programs will do is delay the needed and eventual adjustment of the housing market. With Fannie delaying the sale of these homes for a year [or possibly more] becomes even more of the long drawn out pain instead of the short sharp adjustment the economy needed.
What do you think? do these programs help or hurt the overall economy?
