For the past few weeks now in many states, the real estate market has actually shown life. However, real estate watchers has also been cautious regarding another wave of foreclosure that is going to happen.
Last Thursday, Mortgage giant Fannie Mae explained that it would throw a lifeline to some people losing their homes to foreclosure by allowing them to lease those properties back for up to a year at market rental rates. This is the latest move by mortgage lenders who are trying to reduce the inventories of foreclosed homes on their books. The smaller the inventory, the greater the chance to keep another wave of foreclosure from hitting the housing market again. This new program will add to other efforts by the federal government to shorten the national foreclosure list.
Fanny Mae’s vice president of equity investments said that this program would only qualify those borrowers who had exhausted other options to save their homes, such as loan modification.
The announcement of the new program was made on Thursday when Fannie Mae reported a net loss of almost $19 billion in the third quarter ended Sept. 30, compared with a $14.8-billion loss in the second quarter and a $29.4-billion loss in the third quarter last year. Besides seeking additional aid of $15 billion to stay afloat from the Treasury Department, Fannie Mae tries to produce some income from the the new home-leasing program, especially on homes that are underwater.
According to Bruce Marks, a housing activist and critic of the lending industry, the program was outrageous because it was a distraction from efforts to push lenders to modify loans and while their mission is to provide homeownership, they now are getting into the landlord business.
In order to participate, Fannie Mae has set a few guidelines for struggling homeowners:
- A borrower must agree to convey all interest in a property to the lender.
- The home must be the borrower’s primary place of residence.
- A borrower who turns into a tenant will have to document that the new market rental rate is not more than 31% of their gross income.
- Tenants must agree to allow the home to be shown to potential buyers and allow the company to market it for sale.
Although this may help many homeowners, Fannie’s program isn’t for everyone. Some borrowers would be better off pursuing loan modifications or other solutions. When all other options are exhausted, then they may try out this program.
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