Update (BORROWERS' INSTRUCTIONS): https://www.efanniemae.com/sf/servicing/d4l/pdf/d4lborrowerinstructions.pdf
Fannie Mae Is Now My Landlord?
Well when you think they have thought of everything, Fannie is now in the Landlord business!! I am not sure how I feel about this and whether or not it will realistically make a difference in the process of filtering the problems out of the market. However, it does help the struggling homeowners from becoming
homeless which is a good thing (Just in case, if you haven't heard, homeslessness is on the rise and it partly does have a relationship to the foreclosure problem).
So what does this all mean? I suggest busting out the glasses and get reading.
Fannie Mae announced Thursday that it will allow troubled homeowners 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 can 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? A
gain, 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 (UPDATED) borrower instructions for the program .
Direct lender and licensed in most states across the U.S.
Sr. Mortgage Consultant
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