A sale lease back is common to the world of
commercial real estate. Now Fannie Mae is following the same trail by
introducing a deed for lease program to benefit residential home
occupants facing foreclosure.
To quote the vice president of
Fannie Mae, the deed for lease program provides an additional option
for qualifying homeowners who are facing foreclosure and are not
eligible for modifications.”
Created to “eliminate some of the
uncertainty of foreclosure, keep families and tenants in their homes
during a transitional period and help stabilize neighborhoods and
communities” this program gives homeowners one more option to avoid the
foreclosure process.
The fundamental qualifications for selling
owners are to occupy their home, to have exhausted loan modification
options, to be released from any subordinated liens and to document
that the new market rental rate is no more than 31 percent of their
gross income. These criteria satisfied, the homeowner receives a lease
for up to 12 months and the possibility of a term renewal or month to
month occupancy.
There may be an altruistic theme in this new
program, but the main thrust is likely to defer the long predicted
second wave of foreclosures.
Lenders, including Fannie Mae,
become home owners by the foreclosure process. Just as any home owner
they are reluctant to put their property on the market if there are
indications of recovery.
In addition to not wanting to sell in
adverse conditions, lenders have slowly come to realize that all
options — loan modification, short sale and now deed for lease — are
better financial options than outright foreclosure.
To foreclose
on a home is the last choice for lenders in minimizing their financial
losses; the timely process itself, the physical damage, the selling
costs and submitting to public bid have proven to be 20 to 30 percent
less profitable than other options.
The weathering of the
housing meltdown is new turf for all participants. Solutions and
options are invented as the markets and conditions call for them. First
was the appeal for mortgage modifications, which has actually created a
completely new business for some and service for others. As
modifications solved debt problems for some, it has certainly not been
good for all.
The short sale is the next salvation for the
housing crisis. Long and complicated, the short sale process has saved
the credit for some and created new opportunities for others. It is
likely the evolution of these first two exercises gave birth to the
third option of deed for lease.
Each of these three options is
contributing to the avoidance of the long predicted second tsunami of
foreclosures. Parties on all sides of the transaction have come to
realize that formal foreclosure is the last economic option.
Lenders,
like all home owners, realize that a home with occupants paying rent
and caring for the property is a far better option than flooding the
market and creating neighborhood blight, decreasing value across the
board. As each new option comes with a solution, we can make the same
conclusion about each; it’s about time.
Charles Bogue is a real estate broker in Napa. He can be reached at 486-5511 or e-mail: cbnapa@napanet.net.
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