Fannie Mae to allow borrowers in foreclosure to lease back homes

[DrDoom]

Like I said...housing effectively nationalized with the Fed purchasing MBS's and now Fannie getting into the landlord business. This extend and pretend business is going to lead to a bigger mess because it distorts things even more.

Mortgage giant Fannie Mae said Thursday 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.

The move is the latest in a series of steps by lenders trying to manage inventories of foreclosed homes on their books in an attempt to keep a wave of properties from slamming a housing market that has shown some signs of recovery.

The news came as Fannie Mae reported a net loss of $18.9 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.

The latest loss pushed Fannie Mae's government regulator Thursday to request $15 billion from the Treasury Department. It was the fourth time the Washington company had drawn on its federal financial lifeline since Fannie and its sister firm, Freddie Mac, were seized and placed under government stewardship.

By reducing the supply of cheap foreclosures on the market, Fannie Mae's Deed for Lease Program would add to other efforts by the federal government to aid the housing market, analysts said.

Jay Ryan, Fannie Mae's vice president of equity investments, said the program would help to stabilize neighborhoods. The firm said Thursday that the program would qualify only those borrowers who had exhausted other options, such as a loan modification.

"If you keep more people in their homes, it's better for the community, and hopefully fewer vacant homes on the market will help stabilize those communities," Ryan said. "If someone still wants to live in their home, be it for the kids wanting to stay in the school district or the family wanting to remain embedded in their community, this gives them another opportunity."

The program also would allow Fannie to produce some income from the properties -- many worth less than their mortgages, or "underwater" in industry terms -- as it waits for home prices to recover.

"This is a very wise business decision because these loans are underwater, and they are not going to get all of the money," said Richard Green, director of the USC Lusk Center for Real Estate. "Fannie has an incentive to keep the homes reasonably maintained because they are going to want to sell them one day."

Bruce Marks, a housing activist and critic of the lending industry, said the program was a distraction from efforts to push lenders to modify loans.

"Their mission is to provide homeownership and yet now they want to get into the landlord business. It is outrageous," said Marks, executive director of the housing nonprofit Neighborhood Assistance Corp. of America. "The issue has to be to force these banks to restructure mortgages, not let them off the hook."

Fannie Mae to allow borrowers in foreclosure to lease back homes -- latimes.com

[Mr Morley]

We did the same thing during the Depression in the 1930's. Federal government made a lot of money off rent and the eventual sale of the homes.

[Not New]

We did the same thing during the Depression in the 1930's. Federal government made a lot of money off rent and the eventual sale of the homes.

today these are considered gubmint hand outs, it will be a mess & we will lose billions. forget 1930, people had pride back then.

[Mr Morley]

today these are considered gubmint hand outs, it will be a mess & we will lose billions. forget 1930, people had pride back then.

If, in your mind, it's a government handout today, then was a government handout in the 1930's, and you should be pissed that your parents (or grandparents) were involved in that sort of capital-S Socialism.

[DrDoom]

We did the same thing during the Depression in the 1930's. Federal government made a lot of money off rent and the eventual sale of the homes.

Yes the Home Owners Loan Corp., rewrote mortgages, managed rental conversions and decided when vacant, degraded properties should be demolished. It was essentially set it up like a draft board in each community under federal guidelines. This is not the broad-based HOLC measure...it is more like a half measure that will ultimately cost the taxpayer. The difference between then and now is that the TBTF problem wasn't allowed to fester and drag down the economy. Under FDR zombie banks were nationalized and dismantled and not allowed to simply fudge their balance sheets or pass off their debt onto the public's balance sheet. Instead, what we have today is the Japanification of the economy whereby we are propping up zombie institutions that hoard capital, don't lend, and gain unfair market advantage over smaller and mid-tier banks because of gov't subsidies via the Fed lending facilities and TARP. What we've nationalized is their debt but left the management in private hands to dole out bonuses and take advantage of free money giftwrapped by the Fed which is fueling another bubble in equities and commodities.

Don’t codify too big to fail

Rolfe Winkler Blog Archive Don’t codify too big to fail | Blogs |

[Mr Morley]

Upside: we won't get redlining this time.

[Not New]

If, in your mind, it's a government handout today, then was a government handout in the 1930's, and you should be pissed that your parents (or grandparents) were involved in that sort of capital-S Socialism.

My gradndparents weren't here yet and my parents had good jobs. So no, Mr Rogers, my family never needed hand outs from the Gubmint. 5 generations of welfare free living. Sad to say it sounds like you guys been in a few cheese lines before.

[StrangeTanks]

First of all, lets get over a big myth here.

If you don't pay your mortgage, the lender DOES NOT automatically become the owner of your house! There is a legal process in place which sends the property to auction, the proceeds are then used to pay off the debts against the property. First position lenders often bid on these properties at auction in an offort to become the new owner if the bidding doesn't go high enough to pay the mortgage.

This sounds more like a "Friendly Foreclosure" process. Basically, the home owner voluntarily assigns the property to the bank. In return they are allowed the opportunity to rent the house from the lender. On the lenders side, its much easier to evict someone than it is to foreclose on them.

Basically, it saves a pile of money. Paying attorneys to foreclose is horribly expensive and can take years if the home owner is savvy.