Foreclosure Leaseback Keeps Families in Homes

The way it works, explains the LA Times, is that borrowers who are eligible can give the lender the deed to the home; then, the lender will lease the property back to the borrower. The rent will be calculated based on the current market value of the home, rather than the actual value owed to the lender.

With close to 940,000 homes that are delinquent in payments, this program is likely to have a positive effect on many thousands of families who might otherwise lose their homes to foreclosure. For example, The Center for Economic and Policy Research show that in San Diego, median costs of a home purchased in 2006 were close to $560,000. The carrying costs on that home are around $3,000, plus or minus. The monthly fair market rent, at the moment is just over $1400. That gives families financial relief to the tune of almost $1650 per month. That is a savings of over $18,000 per year.

The Deed For Lease Program, as Fannie Mae has titled the foreclosure leaseback program, is currently good for one year at a time. However, after the year is over, the arrangement is reviewed and may carry over on a month to month basis. The purpose of the program is to allow families to remain in their homes until such time as the real estate market recovers, so they sell their homes; or, if possible repurchase them from the banks at current market rates.

Critics such as Bruce Marks, of the Neighborhood Assistance Corporation of America, suggest that the program is an easy way for banks to avoid loan modification. Instead of providing homes for ownership, banks are becoming landlords. This puts mortgage restructuring on the back burner.

But proponents of Deed for Lease suggest that the purpose of program is to prevent a glut of foreclosures from flooding the housing market just as it appears to be on the verge of recovery. Perhaps equally important, according to a Fannie Mae spokesperson, the program helps keep neighborhoods from destabilizing. When homes are unoccupied, neighborhood vandalism multiplies, and values in the rest of the neighborhood tend to erode even further.

The Deed for Lease Program applies only to a borrower’s primary residence. In addition, the owner must prove that the new market rental rate is equal to no more than 31% of annual gross earnings.

While the Fannie Mae foreclosure leaseback may not be perfect, it goes a long way toward helping families remain in their homes and avoid disruption of their lives. With 18 million homes already empty due to foreclosure, this effort appears to be a small, but intelligent first step toward solving some of our nation’s housing woes.

Written by Marc Jablon, Realty Associate
marcjablon@yahoo.com / 561 / 213 – 6139
www.MarcJablonHomes.com