eric the attorney's blog

Deed For Lease

2009-12-09T14:42:00.000-05:00

There are so many foreclosure rescue plans going on, you may be losing track. So here is the latest... if you don't qualify for any of the current homeowner rescue plans, which allow you to modify your interest rate down to 2% or refinance even if you owe 125% of the value of your home, you now may qualify for Fannie Mae’s new “Deed for Lease” Program, designed to help troubled borrowers stay in their homes and prevent a glut of foreclosed properties from hitting the housing market.

The Deed for Lease program allows borrowers in foreclosure who don't qualify for a loan modification or other workout to transfer the title to their house to Fannie Mae by completing a deed in lieu of foreclosure, in exchange for a lease. Borrowers-turned-tenants will be able to sign a one year lease at current market rent rates. After the initial lease term expires, borrowers-turned-tenants may be entitled to lease extensions on a month to month basis. The goal is to allow homeowners to remain in their homes, for Fannie Mae to avoid the expensive and lengthy process of foreclosing on the homes, and to avoid an overload of foreclosed houses in Fannie Mae’s inventory.

The Deed for Lease 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. The Program also does less harm to the borrower’s credit record than a foreclosure. “It shows that you put your best effort to work out a solution,” said Gabe Del Rio, director of homeownership at Community HousingWorks of San Diego. The Deed for Lease Program will be particularly attractive to homeowners who owe more on their house than it is worth. By paying the market rate of rent in their area, they will most likely be paying less than they were paying on their mortgage.

To qualify for the Deed for Lease Program, homeowners must live in the home as their primary residence and prove that they can afford the market rate of rent, which will be established by the management company running the program. The rent can't be more than 31 percent of their pretax income and the borrower must be released from any subordinate liens on the property. The borrower's mortgage servicer must show that a borrower isn't eligible for a loan modification before the homeowner could apply for the program. Borrowers who haven't missed any mortgage payments aren't eligible for the program (Now remember, as with many of these government programs - if you are trying to do the right thing and pay then you will not be helped. Formerly "on time payers" must first begin to "strategically" miss payments in order to qualify for the Program.)

Fannie Mae executives say the Deed for Lease program will allow Fannie Mae to hold inventory off of already saturated housing markets (preventing the real estate market from tanking further) and makes a bet that the housing market will be stronger one year from now. Fannie Mae’s new policy could make sense, even if prices don’t rebound quickly. “There are a whole lot of costs you avoid,” said Thomas Lawler, a former Fannie Mae economist. “You don’t necessarily have to believe that home prices a year from now will be higher than today.” The company will get rental income while avoiding costly foreclosure expenses. It will also help to safeguard the homes, which are less likely to be vandalized when occupied.

This Program will be great if it works, but if not then taxpayers could be stuck owning thousands of foreclosure houses that Fannie Mae could have unloaded at the outset. If the real estate market experiences another leg down, as some people have been predicting, then this could cost a fortune.

Fannie Mae’s sibling company, Freddie Mac, launched a policy similar to the Deed for Lease Program in March. However, Freddie Mac's program requires the foreclosure to actually be completed and only allows month-to-month leases. Freddie Mac declined to detail how many borrowers have participated.

Maximum Loan Limits Extended for Conforming Loans

2009-12-07T17:45:00.000-05:00

The federal government recently extended through 2010 the maximum dollar amount for "conforming loans." This will probably mean better options for borrowers who might otherwise have had to take out "jumbo" loans. For the past two years, the government has, through Fannie and Freddie, agreed to buy mortgages of $729,500 or less for properties in high-cost housing areas like Manhattan and parts of northern New Jersey. That ceiling was scheduled to be lowered to $625,500 at the end of this year, but last month Congress extended the higher limit through the end of 2010. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that he planned to introduce legislation next year raising the maximum F.H.A. loan by $100,000, to $839,750. His bill would make the new limits permanent.

Antidiscrimination Protection for Coop Buyers

2009-12-07T17:43:00.001-05:00

Suffolk County Executive Steve Levy signed landmark legislation in November which provides protection for prospective cooperative home buyers against discrimination. The new Suffolk County law, the first in New York State, requires cooperative boards to provide a written explanation for denial within 45 days, and provides enforcement powers to the Human Rights Commission. Find out more...

Upcoming Changes to the Good Faith Estimate

2009-12-07T17:38:00.000-05:00

On January 1, 2010, mortgage lenders and brokers will be required to provide borrowers with a new easy-to-read standard Good Faith Estimate (GFE) that will clearly answer the key questions borrowers have when applying for a mortgage, including: What's the term of the loan? Is the interest rate fixed or can it change? Is there a pre-payment penalty if the borrower decides to refinance at a later date? Is there a balloon payment? What are the total closing costs? HUD estimates that by improving upfront disclosures on the GFE, and limiting the amount estimated charges can change, consumers will save hundreds of dollars in closing costs.

HUD withdrew a proposed requirement that closing agents read and provide a closing script. Instead, there will be a new page on the HUD-1 Settlement Statement that allows consumers to easily compare their final closing costs and loan terms with those listed on the GFE. To help borrowers compare their Good Faith Estimate with their HUD-1 Settlement Statement, each designated line on the final HUD-1 will now include a reference to the relevant line from the GFE.

HUD's new GFE was reduced from four pages to three pages, including an instructional page to help borrowers better understand their loan offer. In addition, the GFE will consolidate closing costs into major categories to prevent junk fees and display total estimated settlement charges prominently on the first page so the consumer can easily compare loan offers. HUD will specify the closing costs that can and cannot change at settlement. If a fee changes, HUD will limit the amount it can change.

HUD will require Yield Spread Premiums to be disclosed in a more meaningful way. Loan originators will be required to provide borrowers their Good Faith Estimate within three days after the loan originator's receipt of all necessary information.

See the new Good Faith Estimate Form

See the new HUD-1 Settlement Statement Form

Homebuyer Tax Credit

2009-12-07T17:27:00.000-05:00

In November, President Obama signed into law an expanded Homebuyer Tax Credit bill, which extended the deadlines into 2010 and added a new $6,500 credit, expanding the pool of eligibility beyond first time home buyers. Several provisions in the bill became effective immediately.

The new legislation extended the existing $8,000 first-time homebuyer credit beyond its scheduled November 30, 2009 expiration date and into the spring of 2010. A $6,500 credit also will be offered to existing homeowners who sell their current property and purchase a primary residence that costs $800,000 or less. To be eligible for the tax break, homebuyers would have to be under contract by April 30, 2010, with closings wrapped up no later than 60 days after that. Homebuyers who owned their primary residence for five out of the last eight years can claim the $6,500 tax credit for purchases made after November 6th.

In addition, the extended income limits in the bill are now applicable for both first-time homebuyers and repeat homebuyers. The extended income limit for couples filing jointly is now $225,000, with the credit phased out over the next $20,000 in income. These new limits cannot be applied retroactively to deals completed before November 7th.

This kind of government intervention to date has been extremely helpful in preventing an even more dramatic decline in home prices. One economist pointed out that if you look at the data, housing demand has actually only fallen to normal levels and stabilized there. Without historically low mortgage rates, support for Freddie Mac, Fannie Mae and FHA, and an $8,000 tax credit, how far would sales have fallen this year and what would that decline in demand have done to pricing?