Fannie Mae's Deal: Rent Your Home from the Government

There are so many rescue programs going on, I am losing track. Thanks to reader Patrick for notifying me of this; I have been so busy staring at the mirror (while clicking heels 3x) slowly repeating "prosperity is back" I sometime forget how "prosperity" is being achieved.

So here is the latest... if you don't qualify for any of the current homeowner rescue plans, which allow you to refinance even if you owe 105% 125% of the value of your home, you now can qualify for this new Fannie Mae plan. Yes sir... step right up... the government (via Fannie) will allow you to stay in your home as they take over the deed, and offer you a rental option, at market prices. So did you overpay when you put nothing down on that option interest loan using a 48% income to payment ratio? [Sep 26, 2008 : 15% of Americans Spend 50%+ of Income for House Payments] 36% underwater on your home? No problem - we (the collective) are here to "fix it".

Instead of that nasty $3200 mortgage you are facing, we sniffed around and renting in your area is more like $1600. So you get to stay in "your" home (yes the one you put nothing down on), for half the rate for 1 year... and then it will be month to month after that. And if month to month means you get to pay a market based rental fee rather than an actual mortgage for say 10 years, apparently that will be ok. Because that's one less hit for Fannie to admit to, as they suck up tax dollars on a quarterly basis. [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Now Owned by You] [Nov 14, 2008: Freddie Mac First to the Trough] [Jan 25, 2009: Freddie Mac Saddles Up for Another $35B] [Mar 12, 2009: Fredie Mac is Back for More of Your Grandkids Money - $30.8B] [May 8, 2009: Fannie Mae with Next $19 Billion Bailout] And we can talk up housing recoveries in the meantime as this shadow inventory of future foreclosures stays off the market... it's a win, win, win. (again) I guess letting people lease their homes is one way to stop walkaways [Nov 3, 2009: Nearly 600,000 Americans Walked Away from their Mortgages in 2008]

So let's review... buy a house way over your means, with nothing out of pocket. Use the most exotic loan possible so your payments on said house are say 40% of what they should be. If the house goes up in value, flip it! Or become a serial refinancer so you can live the good life, using home equity to buy cars, upgrade that kitchen, go on vacation et al.

Now if by some chance the home value goes down... then you cry to government about how the font on your mortgage was too small and you were "tricked". Or, no one told you that home prices could actually go down. You enjoy that house and deserve it after all - even though the down payment and closing cost was rolled into the mortgage and you could never afford it. (small details) So then White House Program #1 came out .... and you could still refinance up to 105% of the value of the home. [Mar 5, 2009: WSJ - Mortgage Bailout to Aid 1 in 9 Homeowners]

But that didn't work for enough people who put nothing down on their home and quickly were 110-120%+ upside down as home prices fell nationally. So White House Program #2 came out to refinance everyone who is up to 125% upside down. But that also didn't work for enough people, so now we have a cool new program where you can lease that house (that you deserve) for rates far below mortgage rates. So in the end, you win - you enjoy the house and the "responsible folk" just watch with jaws agape from afar. And let's remember, all these "housing rescues" do a great job.... of just kicking the problem down the down another year or two [Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble]

The surreal life continues - even the name of this program causes chortles. "Dude! I can lease my own house ... to myself - that is so cool!"

Via WSJ:

• Fannie Mae plans to allow homeowners facing foreclosure to stay in their homes and rent them for up to one year (for "up to one year" is not exactly true - as month to month extensions are available after the first year) as part of the latest effort to help troubled borrowers while keeping a glut of foreclosed properties from hitting the housing market.
• The Deed for Lease Program, which Fannie plans to roll out on Thursday, will offer borrowers who fail to complete or don't qualify for a loan modification or other workout to deed their property to the lender in exchange for a lease. Borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments.
• To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which would be determined by the management company. The rent can't be more than 31 percent of their pretax income.

More...

• The rental program will allow Fannie to hold inventory off of already saturated housing markets and makes a bet that the housing market will be stronger one year from now.

And that's really the important thing as we talk up housing recoveries ... don't mind the mirage folks. Move along.

Now remember, as with almost all these government programs - if you are trying to do the right thing you are punished. Formerly "on time payers" must first begin to "strategically" miss payments and then all the King's horses (and men) will come to save you. Moral of the story? Don't act like a responsible adult or government largess won't find you.

• Borrowers who haven't missed any mortgage payments aren't eligible for the program, and the borrower's mortgage servicer would have to show that a borrower isn't eligible for a loan modification before the homeowner could apply for the Deed for Lease program.

And Freddie Mac will surely be next:

• Freddie Mac says it is considering whether to extend longer-term leases to some troubled homeowners. "We're looking into our options because there are certain markets where there's just so much inventory on the market," said Ingrid Beckles, senior vice president of default asset management at Freddie Mac.

One of my screwball predictions in early 2008 was that we might very well reach a point the government buys homes outright; this is effectively where we are now in a synthetic fashion.

Oh well, all I know is anything that keeps people in homes (even ones they put nothing down on therefore the term "owner" is facetious at best, or serial refinanced their way to the point they had no equity) and causes the stock market go up .... is "good". So is there anyone left to bailout - we seem to have covered just about every demographic.

Oops, I forgot - 1 more group to go. [Jul 15, 2009: Reuters - Obama Mulls Rental Option for Homeowners, along with Paying Mortgages for Unemployed]

Comments

[basehitz:]

Peter Schiff expresses my sentiment on the govt now becoming the world's largest landlord (in addition to already being the world's largest hedge fund).
www.youtube.com/watch?...

Further, the 2nd homebuyer tax credit is about to get signed. Many rave about how the 1st handout was so successful. Besides what Mark has pointed out in unqualified buyers with no downpayment, the following was from NAR on previous package:
"About 1.4 million first-time homebuyers have qualified for the credit through August, and the National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit."

To rephrase, 1.05 out of 1.4 would have purchased WITHOUT the handout. So the real cost per additional sale was (1.4/0.35 * $8K = $32,000) tax credit for each ADDITIONAL purchase from rebate. And given the % of defaults already from these new "homeowners", FHA is in the que for future bailout(s). Here's the full article with above quote:
finance.yahoo.com/news...=

Nov 06 06:47 AM

[enigmaman:]

This is further evidence that the Fed Government has thrown in the towel on fixing the foreclosure problems, up to 2008 the Federal theme was to turn renters into owners, "Why rent when you can own" now the new pitch is "Why own when you can rent" and for owners "Cut your housing costs in half, give your keys to Uncle Sam, he wants you to rent your home" this is an obscene surreal development, that will turn our real estate market into a giant housing project, it will devastate the real estate market for the responsible borrowers. In previous articles the author had insisted that home values had to fall much further to make it more affordable for more even if at the expenses of the responsible owners. Seems like the Fed Government will accommodate his request, except in a way that will have farther reaching consequences then he would have ever expected with the government possibly being the biggest property owner in the country, they will then be able to dictate on a national level, property values, appreciation rates, rental rates, in essence they will control the market for the good of all, god help us!

Nov 06 06:53 AM

[User 36265:]

Under this new, Deed for Lease Program, these newly bailed out renters now have a property they can afford to live in.
Will the new Fannie-Leasing Management Company also provide the upkeep of the property?
Maybe they can hire some of the unemployed to provide the upkeep so that the tenants can focus on keeping their jobs.

Nov 06 08:18 AM

[John Galt:]

Maybe Obama's friend Tony Rezko could be the slumlord czar.

Seriously. They create programs to make...
Housing affordable --> Housing prices sky rocket
Medical coverage affordable --> Health costs sky rocket
College affordable --> College prices sky rocket

It's a joke. A complete and utter joke. People who put 0% down... some in fact borrowed 110% of the price of "their"homes calling themselves home owners. You can cry all you want, but you weren't an owner to begin with since you had no equity. Cry and blame Bush, Barney Frank, Bankers, Real Estate agents, Greenspan, or the market... but please take some personal responsibility because in the end, it was YOU who signed, and it was YOU who didn't do the basic math required to see if you could afford it.

Nov 06 08:56 AM

[tripleblack:]

10:4, Mr. Galt.

And unfortunately, it is also US who vote in the Bushes, the Franks, the Obamas, the Pelossis and the Dodds.

Elections have consequences, including the ones laid out in this article. Individual responsibility in our society really DOES include those things menitoned by John Galt, and even the underlying items which lead right back to every local government, state house and Washington DC.


On Nov 06 08:56 AM John Galt wrote:

> Maybe Obama's friend Tony Rezko could be the slumlord czar.
>
> Seriously. They create programs to make...
> Housing affordable --> Housing prices sky rocket
> Medical coverage affordable --> Health costs sky rocket
> College affordable --> College prices sky rocket
>
> It's a joke. A complete and utter joke. People who put 0% down...
> some in fact borrowed 110% of the price of "their"homes calling themselves
> home owners. You can cry all you want, but you weren't an owner to
> begin with since you had no equity. Cry and blame Bush, Barney Frank,
> Bankers, Real Estate agents, Greenspan, or the market... but please
> take some personal responsibility because in the end, it was YOU
> who signed, and it was YOU who didn't do the basic math required
> to see if you could afford it.

Nov 06 09:02 AM

[John Galt:]

On Nov 06 09:02 AM tripleblack wrote:

> 10:4, Mr. Galt.
>
> And unfortunately, it is also US who vote in the Bushes, the Franks,
> the Obamas, the Pelossis and the Dodds.
>
> Elections have consequences, including the ones laid out in this
> article. Individual responsibility in our society really DOES include
> those things menitoned by John Galt, and even the underlying items
> which lead right back to every local government, state house and
> Washington DC.

I agree with you, but I didn't vote for a single person on your list. Americans don't even have the option of voting for Greenspan,Bernake, Paulson, Geithner.

Nov 06 09:12 AM

[tripleblack:]

Of course not, neither did I (as a Libertarian I am the political equivilant of a Cubs fan - I have perfected the art of losing, LOL).

As for mssrs. Greensapian, Bernanke, Paulson, Geithner, we vote them into office indirectly - in the same way that we establish nimrod organizations like Fannie and Freddie. We vote in the politicians who then appoint/create the others.

Our collective hands are dirty, despite your and my individually clean ones. Ah, well, Galt's Gulch is looking more attractive every day...


On Nov 06 09:12 AM John Galt wrote:

> On Nov 06 09:02 AM tripleblack wrote:

Nov 06 09:18 AM

[Leftfield:]

The loans involving no income verification are likely to fail the 31% income/payment test. Plenty there, especially as many probably involved house flippers who have, by definition, lost their source of income now.
Good luck, buyers of distressed real estate. You not only have monumental property taxes that are likely to go only up, but the government is likely messing up housing in the US for generations if not forever.
Government involvement means, whatever harebrained and arbitrary decisions they arrive at, rule. They are now becoming the biggest player in many areas of the economy. They respond only to those who have the clout to influence them. Money, mostly. Not principle. So, the bloated government that has overreached into every crevice of American life with rules, steps and requirements now reaching the fulfillment of it's path: Americans will now become renters with mortgages.
This program is designed to help the banks, government's main partner, as they are co-dependents in fraud. This is the result of at least decades of settling for compromise for a temporary easy way out, by too many Americans. The bill and pain of any way out gets larger every time we accept falsehoods in lieu of a real solution because we have solved nothing. We have career politicians who have built their fiefdom, government, to such size and power that it has crippled Main St. Together with Wall St., they have turned America into an unrecognizable, tragic parody.
We still have elections. Those quaint founders who gave us the truth, the Constitution, that once gave us America, envisioned citizen politicians who would bring real-world experience and solutions to government, then go back home. We have to evict the career shysters in power one after another until we get real citizens again in government.

Nov 06 09:19 AM

[John Galt:]

On Nov 06 09:18 AM tripleblack wrote:

> Of course not, neither did I (as a Libertarian I am the political
> equivilant of a Cubs fan - I have perfected the art of losing, LOL).
>
> As for mssrs. Greensapian, Bernanke, Paulson, Geithner, we vote them
> into office indirectly - in the same way that we establish nimrod
> organizations like Fannie and Freddie. We vote in the politicians
> who then appoint/create the others.
>
> Our collective hands are dirty, despite your and my individually
> clean ones. Ah, well, Galt's Gulch is looking more attractive every
> day...

But Saturday Nancy Pelosi will prove this "representative" democracy is nothing more than a "puppet" democracy. The people obviously don't want a trillion dollar health plan passed, people are frantically calling their representatives and protesting, but what's going to happen? Are they going to represented their constituents or pass it anyway?

Dr. Ron Paul made a great comment the other day about doing what's right....

Where were all the republicans when Bush was spending money like a drunken sailor putting us in a 400 Billion dollar deficit? They didn't protest him because he was a Republican.

Now, where are all the anti-war prius driving lefties that so desperately wanted to end the war? Of course they aren't picketing Obama out behind the white house and in rallies. They got their democrat in office, they have to stand by their guy. They certainly don't like Obama's policies on the war, but they stand silent.

So are people going to stand up for what they believe in, or are they going to support the left or right until they get their guy, and then sit back and defend them when the attacks from the other side come in?

Nov 06 10:00 AM

[tripleblack:]

Yes, you put forward an accurate portrayal of a big bleeding chunk of the problem.

Last election I reached out to everyone I know (and, via the internet lots of folks I DON'T know), and pleaded with them to carefully review the performance of the people they intended to vote into office.

I got lots of responses that went:

"Oh yes, you are SO right, we really do need to do something about Washington! But MY PERSONAL rep is good, he/she is very moderate/conservative/... just like ME!"

This even included Republicans who were planning to vote for the other side because they were upset with Bush.

This sort of lazy, mindless, reactionary behavior is what gets us catastrophic election results. Most Americans (even the ones who actually trouble to vote) could not tell you the names of their Representative, or even their two Senators, much less their state representatives. Until that changes, the drunkard's walk that is the path of American politics will contineue.


On Nov 06 10:00 AM John Galt wrote:

> On Nov 06 09:18 AM tripleblack wrote:

Nov 06 10:12 AM

[enigmaman:]

Vote every single politician out of office, when you sweep you start at the top of the stairs, the long standing incumbents have had little reason to worry about re election because they have the power and money but we have the power of the vote and we are mad as hell, if you want to shake things up vote every single one out as they come up for re-election and then you will see change you can believe in,


On Nov 06 09:19 AM Leftfield wrote:

> The loans involving no income verification are likely to fail the
> 31% income/payment test. Plenty there, especially as many probably
> involved house flippers who have, by definition, lost their source
> of income now.
> Good luck, buyers of distressed real estate. You not only have monumental
> property taxes that are likely to go only up, but the government
> is likely messing up housing in the US for generations if not forever.
>
> Government involvement means, whatever harebrained and arbitrary
> decisions they arrive at, rule. They are now becoming the biggest
> player in many areas of the economy. They respond only to those
> who have the clout to influence them. Money, mostly. Not principle.
> So, the bloated government that has overreached into every crevice
> of American life with rules, steps and requirements now reaching
> the fulfillment of it's path: Americans will now become renters
> with mortgages.
> This program is designed to help the banks, government's main partner,
> as they are co-dependents in fraud. This is the result of at least
> decades of settling for compromise for a temporary easy way out,
> by too many Americans. The bill and pain of any way out gets larger
> every time we accept falsehoods in lieu of a real solution because
> we have solved nothing. We have career politicians who have built
> their fiefdom, government, to such size and power that it has crippled
> Main St. Together with Wall St., they have turned America into an
> unrecognizable, tragic parody.
> We still have elections. Those quaint founders who gave us the truth,
> the Constitution, that once gave us America, envisioned citizen politicians
> who would bring real-world experience and solutions to government,
> then go back home. We have to evict the career shysters in power
> one after another until we get real citizens again in government.

Nov 06 10:19 AM

[Tony Petroski:]

I'm with Mr. Mark on this one.

Mr. Mark: The spell required you to say "there's no place like home."

In the lesser-known "Oz-II, Dorothy Lingers in the Field of Poppys," the chant was "there's no place like a rental home."

Nov 06 10:40 AM

[pjpyes:]

I'm for it! I have a home, I thought, I would be getting some help in refinancing from the government program that came to Ohio, but they said that they are there to help people stay in their homes (at the time I wanted to just get rid of it), well I would like to keep my home, but my home was rob blind by vandals, so I have to start all over again in putting in pipes and the whole nine yards. I'm very disappointed that the system doesn't have the funding or suggested in helping us borrowers that would like to fix up our homes in get back on track with the worst credit due to fact that I'm a borrower loan college student and this is my first two homes that I've ever bought, and I got caught up with those people that come around and tear up your homes when they are vacant before making my first house note. I thought about giving up, but since I'm still a homeowner of one of my homes (the second one), I've decided that I want to rent my home out to those that are of low income housing, since myself I'm a low income housing renter. I've promised to follow the rules in getting house inspection and paying taxes and I hope to get enough reduced rate to afford the utilities too. The tenant that I had renting in this home left me a $3000 dollar water bill and the water company is still collecting on the water bill with NO pipes, so I don't get that, and I'm being charge to fix up my yard a $350.00 dollar bill from the city (quarterly), and I'M IN A NO WAY OUT of getting MY NAME OFF the DEED! I wish and hope that the government helps us that are disadvantage and have gotten abused by the misfortunate of people that feel they can go into vacant homes and take everything that you've worked hard for. Go Obama, and I HOPE THE GOVENMENT HELPS US THAT ARE DISADVANTAGE AND ARE STILL STUCK IN THE SYSTEM, and the loan company won't help us in getting out of this mess. I really want to try to keep my home, and I would like to start out fresh and giving back to the government a housing opportunity to for those that are disadvantage. Maybe and I hope that's the right thing to do. I want to suggest a plan to the government in putting into place a plan if homeowners want to fix up their homes and rent out to only to their county housing authorities. I think it would be a great idea in helping place those that are low-income and it will help keep the homeowners homes occupied and KEEP UP OUT MORTGAGE NOTES. I'm not a debtor to society, but a contributor, and I would like to get out of debt with this house not allowing me to rebuild my credit. Thanks Obama for atleast caring, and I hope we all can someday get out from under the rut we're in and hello to a fresh new start!

On Nov 06 09:02 AM tripleblack wrote:

> 10:4, Mr. Galt.
>
> And unfortunately, it is also US who vote in the Bushes, the Franks,
> the Obamas, the Pelossis and the Dodds.
>
> Elections have consequences, including the ones laid out in this
> article. Individual responsibility in our society really DOES include
> those things menitoned by John Galt, and even the underlying items
> which lead right back to every local government, state house and
> Washington DC.

Nov 06 10:51 AM

[whydtinogo:]

"... in a democracy, the people get the government they deserve.” Alexis de Tocqueville . Vote who you like in (or out) but they do not care. pjpyes - Obama does not care, he is like all other politicians - its a job - local, state, federal the lot. Sad but true.

Nov 06 11:05 AM

[Roger Knights:]

"that's one less hit for Fannie to admit to"

But foreign creditors (Treasury owners) are noticing the deterioration of their loan. What'll happen when they take our T-bill credit card away?

Nov 06 11:08 AM

[TraderMark:]

lol, love it!


On Nov 06 10:40 AM Tony Petroski wrote:


> In the lesser-known "Oz-II, Dorothy Lingers in the Field of Poppys,"
> the chant was "there's no place like a rental home."

Nov 06 12:50 PM

[TeresaE:]

Wonder how many months of free accommodations these "homeowners" can finagle? 12? 24? Indefinitely?

Mark the government IS and has been outright buying homes. Here in my town (which is very suburbia, very white, very union and very left leaning) the city has received a couple million dollars to buy "houses that are not selling out of foreclosure" and then they fix them up and gift them as either rentals (if they can't find a buyer- ha) or sell to the disadvantaged through FHA.

They just bought 3 houses for $50k each - equivalent homes are selling for $140k and up.

Yep, if I went to the bank and said, "I'll pay you $50k for this" the bank would have told me to pound sand.

Man, how much proof do we need that we have become the USSA?

Apparently, food lines and more desperation.

Nov 06 07:34 PM

[lower98th:]

Mark: This program is not only for owner-occupants, per the FNMA guidelines...

11.5.2009 1
November 4, 2009
Deed-for-LeaseTM
Instructions for Borrowers
These instructions are intended for borrowers who may be eligible for a Deed-in-Lieu of Foreclosure (DIL) and are considering a Deed-for-Lease with Fannie Mae.
You may be eligible to lease your property following a DIL.1 Additionally, if you have tenants in the property, they may be considered for a continuing lease.

Wow.

Nov 07 11:42 PM

[TraderMark:]

every news report I read said it was only owner occupied

if its not, thats even more horrific. But at this point I've become numb.

Hours after this program was announced, fannie asked fed government for $15B more in bailouts.

Just a ponzi economy. Enjoy it Romans.


On Nov 07 11:42 PM lower98th wrote:

> Mark: This program is not only for owner-occupants, per the FNMA
> guidelines...
>
> 11.5.2009 1
> November 4, 2009
> Deed-for-LeaseTM
> Instructions for Borrowers
> These instructions are intended for borrowers who may be eligible
> for a Deed-in-Lieu of Foreclosure (DIL) and are considering a Deed-for-Lease
> with Fannie Mae.
> You may be eligible to lease your property following a DIL.1 Additionally,
> if you have tenants in the property, they may be considered for a
> continuing lease.
>
> Wow.

Nov 08 11:54 AM

[lower98th:]

HR 3548, the extension of the Homebuyer Tax Credit, is now Law. Homeowners who have been in their home for 5 years or more in the last 8 will receive a tax credit up to $6500 for the purchase of a primary residence. More information about timeframes and specifics are detailed by many sources, including rismedia.com/2009-11-08/.

This new Bill was framed as an amendment to the First Time Homebuyer Tax Credit. The underlying Act, not originally meant for Current Owners, did not address the disposition of any current residence nor, it seems, does the extension (thomas.loc.gov/cgi-bin.../~c111XwRUtJ::). While there is a requirement that the new purchase be used as the primary residence, there is no requirement for a corresponding sale of the old one.

One of the unintended (or perhaps not) consequences of this may be to encourage qualifying owners to buy a new primary residence in addition to, rather than instead of the old one. The original residence could theoretically be converted to investment property, or a second home (I'm sure some of us are ready to retire, really, to a condo at the Beach). If that beach thing doesn't work out, well unless I missed some footnote duration requirement, the original residence is standing by. Lucky for those who can afford two properties, and also good for the inventory overhang.

The lack of a sell factor may come back to haunt well-intentioned “move-up buyers” who find they can’t unload the first home, and now have two mortgages.
Or how about this: a $6500 tax credit tempts underwater- but-current owners to move down to an affordable primary residence, apply the credit to a cheaper (next door?) home, lock in some security, and hope that the first house sells before the strain of two homes becomes too much. At that point default, strategic or otherwise, on House A becomes the last exit strategy.

Perhaps in the end, the defunct, converted original residence and its rent-paying tenants will be eligible for FNMA's Deed for Lease (D4L) program.

Nov 08 07:04 PM