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A few days ago, (November 6, 2009), Associated Press published the article, "Borrowers given rent option - Homeowners near foreclosure could sign a 1-year lease with Fannie Mae:"

WASHINGTON - Can't pay the mortgage? You still might be able to stay in your home. The government-controlled mortgage company Fannie Mae is going to give borrowers on the verge of foreclosure the option of renting their homes for a year.

The change announced Thursday could give a temporary break to thousands of homeowners, but critics question whether it will only add to the mushrooming losses at the company, which has received billions in taxpayer money.

The new 'Deed for Lease' program will enable home-owners to transfer title to the property to Fannie Mae and sign a one-year lease, with potential month-to-month extensions after that.

It also helps save money because the lender does not need to complete the often lengthy and time-consuming foreclosure process.

The program helps 'eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,' Jay Ryan, a Fannie Mae vice president, said in a statement.

It also does less harm to the borrower's credit record.

'It shows that you put your best effort to work out a solution,' said Gabe del Rio, the director of home-ownership at Community HousingWorks of San Diego.

However, Mike Himes, the director of home-ownership services at NeighborWorks Sacramento, said the industry should push harder to modify loans at lower monthly payments.

'The preferred option is allowing people to retain ownership,' he said.

Fannie Mae executives said the rental program is designed to help delinquent homeowners who don't qualify for a loan modification but still want to stay in their homes.

To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which will be established by the management company running the program.

Rents are based on current market rates.

The plan is expected to be particularly attractive in places such as Phoenix or Orange County, Calif., where homeowners are stuck paying large mortgage bills on properties that are now worth far less than they originally paid.

At the same time, rents have been falling in those areas.

So by renting the same house, former homeowners could wind up paying far less."

On the surface, this Fannie Mae program sounds like it could have some merit. However, I believe this program is going to cause many homeowners to put the nails in their own caskets.

Why?

Because Fannie Mae certainly isn't going to tell the owners who deed over their homes that their defaulted mortgages may have been so toxic that the legal standing to foreclose them may have been fatally compromised by the securitization process, derivative financing arrangements, and/or the "Wall Street shuffle."

Perhaps a better strategy for homeowners would be to take close look at exactly how Fannie Mae acquired the legal standing to foreclose - before deeding over their homes.

- Ed Smith, Publisher
The EHS Letter Manual