The “right to rent”; an old idea is given new life

H.R. 5028 also known as the Right to Rent Act of 2010 was introduced April 15th by Representatives Raul Grijalva (D – AZ) and Marcy Kaptur (D – OH) as a means “To allow homeowners of moderate-value homes who are subject to mortgage foreclosure proceedings to remain in their homes as renters.”

According to Representative Grijalva’s press releases ([http://grijalva.house.gov/index.cfm?sectionid=13&parentid=5&sectiontree=5,13&itemid=582] and [http://grijalva.house.gov/uploads/R2R_2010.pdf]) , the bill is designed to allow homeowners facing foreclosure to rent the home back from the lender rather than being evicted while the bank is foreclosing. “The bill aims to give relief to middle-income homeowners, not speculators or people living in unaffordable mansions.” To qualify, the home must be the family’s primary residence for at least two years, the home must be equal to or below the median home price for the metropolitan area, and the mortgage must have been originated before July 1, 2007. Upon receiving a notice of foreclosure, the homeowner, may elect to rent for a term of up to five years at a rent determined by an appraiser.

The credit for the idea of “right to rent” along with the rules that seem eerily similar to those set forth by H.R. 5028 actually belongs to Dean Baker, the co-director of the Center for Economic and Policy Research. Mr. Baker’s idea of “right to rent” was introduced in 2007, when the idea was actually better suited to be implemented in helping distressed homeowners as well as reducing the impact of home value deterioration (http://www.guardian.co.uk/commentisfree/2007/oct/23/therightbailout).

The original article discussed the merits of keeping families in a home, maintaining the integrity of the neighborhood, all the while not requiring a government bailout:

“It is possible to help these families without any big bailouts or new bureaucracies…so that homeowners facing foreclosure will have the option to rent their home indefinitely at the fair market rent…The appraiser would determine the fair market rent…”

“This measure would ensure that current homeowners could at least keep a roof over their head…”

“This own to rent provision can be limited by both the date of issuance of the mortgage, and the value of the home…the own to rent option can be restricted to mortgages issued before July 1 2007…”

“To ensure that only less affluent homebuyers benefit, it can be restricted to homes that sold for less than the median price in an area…”

A variation of the “right to rent” was implemented by Fannie Mae in November 2009 and subsequently by Freddie Mac. Fannie Mae’s “Deed for Lease” program allows the homeowner to lease the home back from the lender for a twelve month period (the lease may be extended beyond the initial twelve months on a month to month basis) after giving the home back to the lender by completing a deed in lieu of foreclosure and meeting other criteria.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

by Dan Krell

© 2010

A two pronged stopgap for real estate

by Dan Krell © 2009

Last week was indeed historic for events in Washington, DC. However, two important developments that directly affect real estate should be highlighted. You may have already heard that the home buyer tax credit was extended and expanded. However, you may not have heard that Fannie Mae announced another program to assist home owners facing foreclosure.

On Friday November 6th, the President signed HR 3548 into law which extends the home buyer tax credit through next year; home buyers must have a ratified contract for a principle residence (up to a purchase price of $800,000) by April 30th 2010 and close by June 30th 2010. A tax credit up to $8,000 will continue for first time home buyers who purchase their home before the sunset date; other home buyers who purchase their home before the deadline may be eligible to receive a tax credit up to $6,500. Home buyer income limits have also been increased to $125,000 for individuals and $225,000 for those filing joint returns (prorated amounts may be available for those who earn more than the stated limits). For additional qualifying information, please refer to the guidelines posted by the IRS (www.irs.gov/newsroom/article/0,,id=206293,00.html).

Additional good news came last week from the mortgage giant Fannie Mae, which issued a press release announcing the “Deed for lease” program. The “Deed for Lease” program is designed to assist struggling home owners to stay in their homes by allowing them to pay “market” rent. The program requires home owners facing foreclosure to give the home to their lender via a “deed in lieu of foreclosure” (also known as a friendly foreclosure).

The rental period for the “Deed for lease” program may be up to twelve months. The program may also be available for investment properties that are currently occupied by tenants. A rental application fee of $75 per unit is required. If the home is occupied by tenants who want to stay in the home, those tenants must cooperate with the property manager through the process. Any disruption of the process may result in disqualification from the program. Once initiated, the home owner may not be eligible for the ”Cash for Keys” program (a relocation assistance program for those who are forced to leave their homes). Eligibility requirements and further assistance can be obtained from your Fannie Mae servicer (www.efanniemae.com/sf/servicing/d4l/).

This two prong approach may stem further eroding residential real estate values, which may be due to foreclosures, by increasing demand while reducing inventory. Providing incentives to all home buyers will add additional home buying activity, while allowing home owners facing foreclosure stay in their homes may decrease the negative events associated with foreclosure, such as: lowering the number of displaced home owners who are forced to move, reducing the number of vacant homes; and decreasing the inventory of distressed properties that have the potential to lower neighborhood values.

Alone, programs such as these have drawn criticism pointing out statistics indicating that the money is wasted. However, increasing demand through incentives, while decreasing distressed property inventory may be the combination needed to hold off further eroding home values while strengthening the overall economy. Time will tell if the one-two punch is successful and if there is a need for further expansion of one or both of sides of the equation.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 9, 2009. Copyright © 2009 Dan Krell

Fannie Mae in the Rental market?

Although the new “Deed for Lease” program may not be considered nationalized housing, it comes close to the scenario I envisioned back in March:
“Rather than the Government entering the mortgage servicing arena, the ideal nationalized housing program (through Government controlled lenders) would allow struggling home owners to pay what they can afford. In return the home owner would give up some (if not all) of the future equity stake in their home when they eventually sell.”
https://dankrell.com/blog/2009/03/03/nationalize-housing/

 

Yesterday (November 6), Fannie Mae announced the “Deed for Lease Program.” The program is designed for homeowners who are in foreclosure and do not qualify for a mortgage modification. The home owner is supposed to give their home to their lender via a “deed in lieu” (also known as a “friendly foreclosure”) and be allowed to rent back from the lender. Program guidelines and other information can be obtained from Fannie Mae’s news release: http://www.fanniemae.com/