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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 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.

By Elizabeth Razzi  |  November 5, 2009; 2:39 PM ET
Categories:  Foreclosure , Mortgages , Neighborhoods , The economy , The market  
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An obvious question comes to mind. If you rent your home to avoid foreclosure, where are YOU going to live?

Posted by: penniless_taxpayer | November 5, 2009 4:20 PM | Report abuse

In this scenario, you are the person who loses ownership of the home, but continues to occupy it as a renter.

Posted by: Erazzi | November 5, 2009 5:30 PM | Report abuse

By Renting, the person will be throwing away money and paying someone else's mortgage. A clever Realtor and mortgage broker can show how to get an FHA loan with zero down-payment and convert the renter into a proud home-owner. Home-ownership is not for everyone -- with the right government incentives it's only for the dead-beats -- hard working people cannot afford the vast sums of money being talked about.

Posted by: free_np | November 6, 2009 12:31 AM | Report abuse

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