Saturday, November 07, 2009

Will Deed for Lease Program Slow Las Vegas Foreclosures?

For Las Vegas home owners who have been unable to qualify for a loan modification and are facing foreclosure, a new Fannie Mae program would at least allow them to stay in their homes for up to a year if they are willing to sign over their homes to the bank on a deed in lieu of foreclosure. The bank would then lease the house back to the borrower at current market rate for up to a year. After the initial lease period expires, there's the possibility that the bank would extend the lease on a month to month basis.

The program, called Deed for Lease, is designed to help stabilize neighborhoods and reduce the amount of foreclosures on the market. Foreclosures in Las Vegas have been among the highest in the country. Many neighborhoods built during the boom period were bought out by investors and currently stand half vacant. According to Dean Baker, co-director of the Center for Economic and Policy Research, "Families that like their home, their neighborhood, or the schools for their children will have the opportunity to stay in their house even after foreclosure. This is also good policy for neighborhoods that have been hard-hit by foreclosures. The Deed for Lease Program will keep the homes occupied rather than being an eyesore and a potential safety hazard."

To qualify for the deed for lease program, the home must be the borrower's primary place of residence. A borrower-turned-tenant must be able to prove that the market rental payment is no more than 31% of his gross income. Any subordinate lien holders (second trust deeds, judgments, etc.) must agree to release those liens in full. For most homeowners, the rental payment will be far lower than the mortgage payments they were making.

The Las Vegas real estate market would seem ideally positioned for this new program. There are even rumors that in the future Fannie Mae would seek to sell the homes back to owner/tenants. Current short sale guidelines prohibit more affluent friends or family members from purchasing a borrower’s home in the hopes that one day they would be able to buy them back. Banks could gain from potential appreciation over the next few years, rather than going through the expense of the foreclosure process and low prices now.