Fannie Mae this week announced its Deed for Lease Program that effectively allows qualifying homeowners with Fannie Mae mortgages facing foreclosure the opportunity to rent their home at market rate for up to a year. The move was the latest in a host of federal maneuvers to ward off the adverse effects of foreclosures, with this one intended to reduce the number of actual foreclosed properties from hitting an already foreclosure-flooded housing market, keeping people in their homes, and keeping properties in foreclosure-heavy neighborhoods from becoming vacant.
In short, it’s a good idea long overdue. But is it enough? According to the Fannie announcement, the program “is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.”
The program stipulates that the near-foreclosed property is the owner’s primary residents, and that borrowers or tenants looking to lease prove that the new market rental rate is no more than 31 percent of their gross income. After the 12-month period, leases can be extended on a month-to-month basis, according to Fannie Mae.
In the Winter 2009 issue of Shelterforce, Dean Baker, co-director for the Washington, DC-based Center for Economic and Policy Research writes that “[T]he bubble made it virtually certain that new homebuyers would lose money on their houses” and that the current rate of 150,000 foreclosures per month could extend into 2011. The Right to Rent alternative to federal subsidies, Baker writes, would “provide housing security to the millions of families who now fear losing their home, without any new bureaucracy and with no taxpayer dollars.”
However, he offers the caveat that short-term tenant status is not the way to go. Baker suggests that rather than one year, five- to 10-year options would prove more effective.
Editor’s Note: Dean Baker’s article, “Right to Rent: The Best Response to the Housing Crash,” appears in the Winter 2009 issue of Shelterforce.