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Turning Home ‘Buyers’ Into Renters

By JLP | November 6, 2009

Fannie Mae is becoming a landlord…

Fannie Mae will allow homeowners facing foreclosure to stay in their homes and rent them for as long as a year, as part of the government’s latest effort to help troubled borrowers, while keeping more foreclosed properties from hitting the housing market.

The “Deed for Lease” Program lets borrowers who don’t qualify for loan modifications transfer their property to Fannie Mae in exchange for a lease. Borrowers-turned-tenants will pay market rents, which in most cases are lower than the cost of mortgage payments, and might be offered extensions when their leases expire.

That’s what I read in today’s WSJ. You can read the article here.

The supposed goals of this program are to:

1. Allow people to stay in their homes by giving them rent payments that are lower than their mortgage payments.

2. Keep foreclosed houses from flooding the housing market with excess inventory.

3. Possibly allow Fannie to profit from the eventual sale of the homes when the real estate market recovers.

Fannie will hire a professional management company to handle all the rental details.

Basically, what this means is that since our government essentially owns Fannie Mae, our government is now a landlord. So much for property rights. Kinda scary if you ask me.

What do I think should happen?

Allow the market to address the housing situation instead of artificially propping it up until who knows when. Attack the situation like you do when ripping off a bandaid…one quick motion.

Topics: Housing Market | 6 Comments »


6 Responses to “Turning Home ‘Buyers’ Into Renters”

  1. BG Says:
    November 6th, 2009 at 4:55 pm

    This is the same thing that any bank could do as well, I’d guess. If someone stops paying, foreclose on them and either:

    a) auction off the house
    b) keep the house, and rent it out

    I don’t like seeing the government involved in any of this, but if Fannie owns the houses, then they should rent them out if they can get a better return doing that than selling them at firesale auction prices.

    The homeowners are not getting “bailed out”, since they no longer own the home.

    But, again, I don’t think the government should be involved in any of this for two reasons: Big Government, and Unintended Consequences.

  2. Rick Francis Says:
    November 6th, 2009 at 4:55 pm

    I agree it isn’t a good idea long term- after all government housing projects aren’t know to be the best.

    I don’t have enough information to know if it is a reasonable temporary solution. The alternative is that Fannie Mae loses a ton of money today… They may end up losing even more mismanaging the rentals but at least there is a hope they will do better in the future. Sadly, either way the taxpayers will ultimately have to cover the losses.

    -Rick Francis

  3. ANDREW Says:
    November 7th, 2009 at 8:48 am

    Would Fannie be the one owning the foreclosures?

    Does this just allow them to replace a present write-down with a small cashflow and a deferred loss/writedown?

    It seems that if the market goes up and the rental costs (evictions, maintainence)outweigh the losses caused by the glut of foreclosed homes on the market, this could be a sound decision.

    A reason why the banks wouldn’t have done this before is that they don’t own the homes. The investment banks do.

  4. El Cheapo Says:
    November 7th, 2009 at 3:31 pm

    This just smacks of a band-aid effect on a large wound. As Rick said, we as taxpayers will be the one left holding the bag in the form of higher taxes.

    While the US plays games with all these existing problem loans and new problem ones (ie. the upcoming commercial, FHA, and prime loan mini-bubbles) at some point in the near future we will incur either 1) foreigners requiring higher yields to purchase our debt or 2) inflation resulting in higher interest rates set by the Fed.

    Both #1 and #2 scenario would put a downward pressure on home prices. Then again there’s always option #3 of the US just defaulting on its debt and starting over. Scary thought.

  5. Foobarista Says:
    November 7th, 2009 at 5:51 pm

    I actually think this isn’t a bad idea, at least in areas where there isn’t a market. It could take years for a “market bottom” to be found, and letting numerous abandoned houses sit on streets being vandalized while this is going on is worse than keeping the people there.

    The other option would be to have immediate auctions with a requirement that the buyer or investor must immediately get the house occupied, or they forfeit the purchase.

  6. JT Says:
    November 9th, 2009 at 11:04 am

    Foobarista,

    The only reason that find a market bottom could take years is with shenanigans like this! The longer they try to reinflate the bubble and prop up prices the longer it will take to come down.

    If the government just stayed out of this we’d have already taken the pain (and it would be PAINFUL) but at least we’d be starting a true recovery! Not some phoney, bs, CNBC recovery.

    Credit to all the people above who can see this program for what it truly is: a way to delay the pain. Fannie Mae doesn’t care about helping people. They just don’t want to have to write down the losses today because they know how bad that will look. They are already hemorrhaging money at a massive rate ($18.9 billion for the third quarter alone!) and it’s only getting worse.

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