Fannie Mae Deed for Lease Program, FHA: The Creation of Another Bubble

by Chris W. at My Thoughts on Freedom

Fannie Mae, the largest provider of funding for U.S. home loans, has announce its Deed For Lease program to allow for allow homeowners to transfer title to Fannie Mae and sign a one-year lease, with potential month-to-month extensions after that. The program also bails out landlords by allowing for their tenants to participate in the program.

WASHINGTON, DC -- Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

"The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications," said Jay Ryan, Vice President of Fannie Mae. "This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities."

The new 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.

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

This come on the heels of the government backed agency's $18.9B 3rd quarter loss and its request for $15B from the Treasury.

So what does this mean to you and I, the taxpayer? Well, for starters, it means that now we are not only owners of these properties but we are now landlords to people who are already having trouble paying their bills and are responsible to collect rents and maintain the properties for an undisclosed period of time.

This also forestalls the process of getting these properties back on the market for at least a year and maybe more while their values further decrease. Not only that, but if the house does sell while it is in the program the lease is transferred to the buyer. Who, other than a speculator, is going to buy a house that is already tenant occupied by someone with a government backed lease?

Proponents of the program say it will save money because Fannie will get rental income while avoiding costly foreclosure expenses. To me, this smells of subsidizes housing and is just another step by the progressives in DC like Barney Frank to perpetuate the Nanny State.

What liberty do we have left if the government controls where we live, where we work and how we get healthcare? Is this really what our Founding Fathers had in mind when they fought for freedom against British tyranny?

I think not.

Editor's note: The New York Times today has a story on the other government agency that is creating another bubble in our economy and adding insult to injury with the real estate debacle. The FHA. Excerpts from the NYT :

In January, Mike Rowland was so broke that he had to raid his retirement
savings to move here from Boston....

A week ago, he and a couple of buddies bought a two-unit apartment building
for nearly a million dollars. They had only a little cash to bring to the table
but, with the federal government insuring the transaction, a large down payment
was not necessary.

In its efforts to prop up a shattered housing market, the government is
greatly extending its traditional support of real estate, including guaranteeing
the mortgages of middle-class and even upper-class buyers against default.

While the F.H.A. is certainly strengthening the high-end market in the Bay
Area by prompting more sales, there are growing concerns that it might become a
destabilizing force.

Our leaders are truly stupid enough to actually create new bubbles on top of the real estate bubble that has popped. Look to them when our economy blows up again as they will be the cause.

Via Memeorandum
Via NYT