FORECLOSURE » Prevent Foreclosures

Homeowners in foreclosure may be able to take advantage of a special program Fannie Mae is initiating to help its customers to stay in their homes by renting. Known as the "Deed for Lease" program, homeowners who don't qualify for loan modifications are allowed to transfer their property to Fannie Mae in exchange for a lease.

How the Program Works

Homeowners who don't qualify for a loan modification can rent their home instead. Fannie Mae will allow homeowners to pay market rents, which for the most part are cheaper than mortgage monthly payments. In most cases, the lease will last for one year. If the lease expires, the lender may offer extensions.

Why They're Doing It

One reason Fannie Mae is taking on this strategy is to give homeowners time to come up a way to move. In addition, Fannie Mae says it is looking for ways to keep neighborhoods occupied rather than leaving homes empty, which can drive down home prices even further, partially because they're not well-maintained when empty.

If the home prices were to drop, Fannie Mae would have a more difficult time selling them at reasonable prices when the time comes. The lender is hoping that the overall housing market will be stronger a year away. Even more, the company would still be able to bring in some income until the house is sold.

Will It Really Help Homeowners?

There are a few benefits for homeowners who take advantage of the "Deed for Lease" program:

• Cheaper monthly payment: Since Fannie Mae will be using market rent rates, renters will likely be paying less than they did on their mortgage.
• Housing security for at least a year: Since homeowners will sign a lease that lasts at least a year, and Fannie Mae won't list houses for sale, they will be given the security of knowing they'll have stable housing for a while.
• Outside maintenance: Fannie Mae plans to hire a professional maintenance company to take care of the homes, something the homeowners previously had to do on their own.

Lender Freddie Mac offers a similar deal to its customers, two-thirds of which have already taken advantage of it. Fannie Mae anticipates similar success with its program.

Do you think an owner-to-tenant program like "Deed for Lease" is beneficial to homeowners facing foreclosure?

The economy is turmoil, and at the epicenter of the current financial maelstrom is the collapsing real estate market. The average home price has plummeted in recent years, with many areas seeing home values fall by as much as 30% and more. What's more, economists predict that the market hasn't reached bottom yet, and that home prices need to fall by as much as another 30% before prices stabilize. That's a nightmare for homeowners, but a boon for buyers. Many distressed homes are in default, and that means the terms can be the buyer's to dictate.

Defaults Rising

If you're a homeowner in distress, you are more than likely in a situation where you can't make your payments anymore - and you're about to default. You need to be free of your financial obligation to your lender, and fast. You're about as vulnerable as it gets, and let's face it, there are many people out there who will take advantage of you without batting an eye. If you can hold on to your distressed home in default, you need to do everything you can to prevent losing it. If you're a home buyer who is looking at distressed homes in default because you think it's the perfect time to buy, you need to balance your desire for a good deal with your desire to treat other people fairly, and not cross over the line into exploitation of the vulnerable.

Problems with Distressed Homes

Buying and selling distressed homes in default can also have a lot of unforeseen financial complications. There can be liens you were never told about, for example, and there can be debt and foreclosure laws that will make selling distressed homes extraordinarily complicated.

Before you buy a distressed home in default, be sure to consult with a real estate professional (or professionals) and get their advice.

While home prices have managed to drop considerably over the past year, they are expected to drop even further . According to the financial and analysis firm, Fiserv, the overall national median price is forecast to drop by as much as 11.3 percent by June 30, 2010 in 342 out of 381 markets.

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