I’m not sure what to make of Fannie’s new "Deed for Lease" program: [Thanks Coffee!]
WASHINGTON, Nov. 5 /PRNewswire-FirstCall/ — Fannie Mae (NYSE: FNM) is implementing the Deed for Lease(TM) Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.
"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."
The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.
I’ll agree that it keeps properties from being vacant, disrupting families and provides more affordable housing. I suspect however, that it helps continue with "mark-to-fantasy" bookkeeping and slows recovery in the housing market.
This is for primary residences only, so it won’t do much for the speculators out there. In fact, it will probably be detrimental to the rental market, as it will keep a pool of potential renters out of the market.
don’t know what i think about this idea??? the only thing i do know is that it will create an accounting battle. when the lender takes the deed they’ll have to recognize the loss on the bad note. then (as you stated twist) what do they value the asset at? will they really get true appraisals on all of these? seems like immediate LARGE losses to be recognized (unless FASB just changes yet another GAAP standard). and will the banks start depreciating these homes (just like any other rental property investor). seems like the lenders just became the largest rental property investors on earth? this will be very interesting to us in the dull accounting world…lol.
AZSaluki-
Dull accounting world? Surely accounting as it is practiced today is one of the most creative disciplines out there. [At least for the big boys. Regular folks like us would probably end up in jail for taking such liberties with our books.]
lol….yeah, it is (and really always has been) pretty creative. my degree states that i have a “bachelor of science in accounting.” it really should state “bachelor of ART.”
“The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification.”
If the Borrower was not able to sustain a work out usually at 50% of their old payment, what makes one think they will keep the leases current.
AZsal; you are right, this will distort the rental market as I suspect the leases will also be under market. Lender feels they will at least up keep the home and lender can for stall ever increasing selling REO inventory.
Wait.. what? How is this any different than a loan mod (at least to the home “owner”)? Rather than modify the loan, you default on it, the property returns to the lender, who then leases it back to you, presumably at a lower monthly rate than you were paying on the loan. So not only do you still default on the loan (maybe it doesnt hit your credit, but the bank doesnt get the cash), but the bank now needs to be a landlord, and write down the loss immediately.
That seems like such a stupid idea that there has to be more. The first time I read it, I thought Fannie would take the deed and lease the property to you, and cover the difference in the payments.
Hell, why don’t we just go ahead and implement this for all purchases.
Me: I’d like that 62″ TV there
Store: Ok, that’ll be $7000
Me: Hm, I don’t have that cash. Can I have an interest-free, no money down loan?
Store: Alright…
Me: Oh, but these payments are too high, I can’t afford them on my $5.25/hour job.
Gov’t: Mr. Store, please mark the TV sale as a return, then lease it to him TV at $10/month. Everyone should have a 62″ TV regardless of income, it is vitally important to the economy.
Store: Er, what?
OtherPatron: Hey, I can afford my TV payment but I don’t want to pay – I want to lease mine too! That way when I want to upgrade I can simply stop paying altogether without taking a hit on my credit.
Store: …
And I thought Enron taught us that not all your employees should “think outside the box”. Accountants should be the first people to stop doing it..
and on the flip side, this is the new encentive for home owners to give the RE losses to the Bank.
“Do not keep current” and you still have a way to stay in your home.
WAIT A MINUTE! What happens when all of these “homedebtors” realize that they can rent the same house for HALF what they were paying to “own” it? They may wise up and not “buy” (become debt slaves) for decades. If enough debt slaves wise up, we’ll see the next collapse of home prices.
I can tell you exactly what it means: it means that the Federal Government no longer believes that housing policy is subject only to minimum scrutiny (as our idiot Supreme Court held in Lindsey v. Normet–by the way, my Con Law prof in law school was on the briefs in that case: what an idiot!).
Read Lindsey v. Normet and then TRY–although I am sure it will be difficult–to at least get a glimmer of understanding of the power regime which governs your whole life. Think that might be useful?
In spite of all our semi-fascist “moral hazard” types, we are moving ahead exactly as I said in my book The Eminent Domain Revolt: out of the scrutiny regime and into the maintenance regime.
Want to be on the sharp edge of the political avant garde. The read this from U.S. v. Carolene Products:
“In twenty years, evidence has steadily accumulated of the danger to the public health from the general consumption of foods which have been stripped of elements essential to the maintenance of health.”
Now answer me this question:
What in FACT (not in LAW) is maintenance?
Answering that question is what we are all now doing.
By the way, told you SEVERAL years ago that I would get my way–and that is EXACTLY what is happening.
Westcoaster, that is why Rent is the best way to value a property. The Government is now saying that a home price = (average gross household income)* 31%. time normalized rent multiple. (11 to be kind)
231,900 in East Phoenix.
89,900 in the West side.
Comps are the worst and now an institutionalized (Federal) method.
Replacement and Income should be used now that appraisal fees have sky rocketed. (Rant)
jryskmpr,
what i love about you is how humble your are. oh yeah….and i had NO IDEA you had a book???
How about this article..only our goverment could approve a program that the lenders could turn around and use it against us…AMAZING..
http://www.associatedcontent.com/article/2381656/why_obamas_home_affordability_program.html?cat=3