The director of Fannie Mae’s deed for lease (D4L) program outlined the initiative during Thursday’s Texas Mortgage Bankers Association (TMBA) servicing conference in an article in Housing Wire.
Miguel Gutierrez said the goal of Fannie Mae is to minimize family displacement for borrowers that participate in a deed-in-lieu of foreclosure program, launched early in November 2009, while managing it in a way so as to not put any undue pressure on Fannie’s ever-growing rental portfolio.
The homeowner-turned-renter is required to pay fair market rent to stay in their home for up to 12 months. The renter must have enough income to sustain a 31% income-to-rent ratio and rental payments are not subsidized by Fannie Mae, but could include renters eligible for Section 8 payments.
As an example, Gutierrez outlined the situation for a fictional family that purchased a $275,000 home in Phoenix with a $247,500 mortgage and a down payment. Including homeowner association (HOA) fees, their monthly payment was $2,050. While those payments were manageable five years ago, the sample borrower had reduced income from his job and HOA fees had increased. Unable to pay their mortgage, the borrower joined the D4L program, reducing their rent to $1,000 while the family continues to look for additional income and/or alternative housing.
The upside of the program for Fannie Mae, Gutierrez said, is promoting neighborhood stabilization, mitigating real estate owned (REO) costs and provides the opportunity to consider other REO strategies, such as maintaining longer rental terms.
“With these benefits to Fannie Mae and borrower, we find the deed for lease program is an effective solution for these properties,” Gutierrez said.