Fannie Mae to allow some troubled owners to rent back

Fannie Mae announced a new program Thursday that will allow some homeowners facing foreclosure to hand the deed back to their lender but remain in the home as a renter.

The idea behind their new "Deed for Lease Program" is that allowing rent-backs will minimize family displacement and stanch the deterioration of neighborhoods plagued by vacant foreclosures, according to Fannie's announcement.

THE DETAILS:

• The servicer has to decide that the borrower qualifies for a "deed in lieu of foreclosure." Basically, borrowers who are in default on their loan voluntarily give the deed back to the lender, negating the need for a drawn-out foreclosure process. Traditionally this has been considered less damaging to the borrower than foreclosure, although both actions have severe effects on a borrower's credit standing--and both result in loss of their home.


• Borrowers-turned-tenants must be able to afford market rent on the home. That rent can't exceed 31 percent of their monthly gross income, which must be documented.


• Borrowers cannot have 12 or more past-due payments on their mortgage. And they must have made at least three payments since the loan was first taken out--or since the last time it was modified. Borrowers can't be in the process of declaring bankruptcy.


• Rentals are for 12 months, with the possibility of an extension.


• The home remains available for sale, subject to the terms of their lease. Renters remain responsible for maintaining the property.


• Only primary residences qualify. Landlords may qualify if their tenant has been using the home as a primary residence.


• Mortgages backed by the FHA, VA or other government agencies don't qualify.


• Borrowers who think they might qualify for the new rent-back program should talk with their mortgage servicers, who, in conjunction with Fannie Mae, will figure out if they qualify for a rent-back offer.