Deed for Lease Program from Fannie Mae

There are thousands of people that would like to stay in their homes, but can’t because foreclosure is coming and they aren’t eligible for loan modification. In an effort to help these people stay in their homes, Fannie Mae is offering what is known as the Deed for Lease program for some home owners that meet certain requirements. Here is what Fannie Mae mentioned about the program in a press release:

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.

These might be an elegant solution for those who are desperate to stay in their homes rather than lose them to foreclosure. However, it is important to note that if you participate in this program, you will no longer own your home. The money you have put into so far is basically gone, and when you pay your lease, it will be like you are renting again. Although, there is a strong possibility that you will avoid the credit stigma that can come with foreclosure.

In the end, you need to weight the pros and cons of your situation, and see what would work best for you: Deed for Lease or a strategic default.

Update, 11-19-09: Chris Thorman offers a great comparison of rental v. mortgage rates in top metro areas, and breaks it down with regard to the program and whether it might make sense to from owning your home to renting it.