Thursday, November 5, 2009

Fannie Mae's New Deed for Lease Program - Rent your Home from the Government

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There are so many rescue programs going on, I am losing track.  Thanks to reader Patrick for notifying me of this; I have been so busy staring at the mirror (while clicking heels 3x) slowly repeating "prosperity is back" I sometime forget how "prosperity" is being achieved.

So here is the latest... if you don't qualify for any of the current home owner rescue plans, which allow you to refinance even if you owe 105% 125% of the value of your home, you now can qualify for this new Fannie Mae plan.  Yes sir... step right up... the government (via Fannie) will allow you to stay in your home as they take over the deed, and offer you a rental option, at market prices.  So did you overpay when you put nothing down on that option interest loan using a 48% income to payment ratio?  [Sep 26, 2008 : 15% of Americans Spend 50%+ of Income for House Payments]  36% underwater on your home?  No problem - we (the collective) are here to "fix it".  Instead of that nasty $3200 mortgage you are facing, we sniffed around and renting in your area is more like $1600.  So you get to stay in "your" home (yes the one you put nothing down on), for half the rate for 1 year... and then it will be month to month after that.  And if month to month means you get to pay a market based rental fee rather than an actual mortgage for say 10 years, apparently that will be ok.   Because that's one less hit for Fannie to admit to, as they suck up tax dollars on a quarterly basis. [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Now Owned by You] [Nov 14, 2008: Freddie Mac First to the Trough] [Jan 25, 2009: Freddie Mac Saddles Up for Another $35B] [Mar 12, 2009: Fredie Mac is Back for More of Your Grandkids Money - $30.8B] [May 8, 2009: Fannie Mae with Next $19 Billion Bailout]  And we can talk up housing recoveries in the meantime as this shadow inventory of future foreclosures stays off the market... it's a win, win, win.  (again)  I guess letting people lease their homes is one way to stop walkaways [Nov 3, 2009: Nearly 600,000 Americans Walked Away from their Mortgages in 2008]

So let's review... buy a house way over your means, with nothing out of pocket.  Use the most exotic loan possible so your payments on said house are say 40% of what they should be.  If the house goes up in value, flip it!  Or become a serial refinancer so you can live the good life, using home equity to buy cars, upgrade that kitchen, go on vacation et al.

Now if by some chance the home value goes down...  then you cry to government about how the font on your mortgage was too small and you were "tricked".  Or, no one told you that home prices could actually go down.  You enjoy that house and deserve it after all - even though the down payment and closing cost was rolled into the mortgage and you could never afford it.  (small details)  So then White House Program #1 came out .... and you could still refinance up to 105% of the value of the home.  [Mar 5, 2009: WSJ - Mortgage Bailout to Aid 1 in 9 Homeowners]  But that didn't work for enough people who put nothing down on their home and quickly were 110-120%+ upside down as home prices fell nationally.  So White House Program #2 came out to refinance everyone who is up to 125% upside down.  But that also didn't work for enough people so now we have a cool new program where you can lease that house (that you deserve) for rates far below mortgage rates.  So in the end, you win - you enjoy the house and the "responsible folk" just watch with jaws agape from afar.  And let's remember, all these "housing rescues" do a great job.... of just kicking the problem down the down another year or two  [Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble]

The surreal life continues - even the name of this program causes chortles.  "Dude! I can lease my own house ... to myself - that is so cool!"

Via WSJ:
  • Fannie Mae plans to allow homeowners facing foreclosure to stay in their homes and rent them for up to one year (for "up to one year" is not exactly true - as month to month extensions are available after the first year) as part of the latest effort to help troubled borrowers while keeping a glut of foreclosed properties from hitting the housing market.
  • The Deed for Lease Program, which Fannie plans to roll out on Thursday, will offer borrowers who fail to complete or don't qualify for a loan modification or other workout to deed their property to the lender in exchange for a lease. Borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments. 
  • To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which would be determined by the management company. The rent can't be more than 31 percent of their pretax income.
More...
  • The rental program will allow Fannie to hold inventory off of already saturated housing markets and makes a bet that the housing market will be stronger one year from now.
And that's really the important thing as we talk up housing recoveries ... don't mind the mirage folks.  Move along. 

Now remember, as with almost all these government programs - if yuo are trying to do the right thing you are punished.  Formerly "on time payers" must first begin to "strategically" miss payments and then all the King's horses (and men) will come to save you.  Moral of the story?  Don't act like a responsible adult or government largess won't find you. 
  • Borrowers who haven't missed any mortgage payments aren't eligible for the program, and the borrower's mortgage servicer would have to show that a borrower isn't eligible for a loan modification before the homeowner could apply for the Deed for Lease program.
And Freddie Mac will surely be next:
  • Freddie Mac says it is considering whether to extend longer-term leases to some troubled homeowners. "We're looking into our options because there are certain markets where there's just so much inventory on the market," said Ingrid Beckles, senior vice president of default asset management at Freddie Mac.
One of my screwball predictions in early 2008 was that we might very well reach a point the government buys homes outright; this is effectively where we are now in a synthetic fashion. 

Oh well, all I know is anything that keeps people in homes (even ones they put nothing down on therefore the term "owner" is facetious at best, or serial refinanced their way to the point they had no equity) and causes the stock market go up .... is "good".  So is there anyone left to bailout - we seem to have covered just about every demographic.

Oops, I forgot - 1 more group to go.  [Jul 15, 2009: Reuters - Obama Mulls Rental Option for Homeowners, along with Paying Mortgages for Unemployed]


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