11/05/2009 SwapRent vs. Fannie Mae’s new Deed for Lease (D4L) program

Fannie’s new Deed for Lease program seems to add nothing new from the earlier “Own-to-Rent” attempt or those two Bill efforts by the two Congressmen.

As a refresher, Congressman Raul Grijalva (D-AZ) introduced H.R. 6116, the Saving Family Homes Act of 2008 on May 22nd, 2008, which requires banks to let homeowners rent their own homes after foreclosure. Congressman Gary Miller from California is similarly also contemplating on introducing another Bill again to require the banks to let homeowners rent for 5 years after foreclosure.

We have proposed these SwapRent and HELM related “temporary own-rent switching” and “economic renting” methodologies to Fannie, Freddie, HUD, Treasury Dept., the Fed and Congressmen since mid 2007, with frequent updates through out the past few years. It is great to see that the GSEs are finally moving in the right direction now and they are moving one step closer to the SwapRent concept. The market needs time to learn. Changes usually come gradually but it will get there sooner or later.

The simple question to the executives at Fannie is that why not let those homeowners who have the economic ability to pay the lower monthly rental payments simply do a “temporary own-rent switching” transaction for a period of time before they get foreclosed or DIL’ed? This new D4L effort after DIL would have the same effect of a foreclosure in the sense that it will trash the value of the mortgage in question and hurt the holders of these mortgages anyway. Fannie itself is the owner of these troubled mortgages.

Why wouldn’t they want to save the financial value of the mortgages they are currently holding on these distressed borrowers by adopting the SwapRent contracts instead? It would be able to save plenty of taxpayer’s money by saving these troubled mortgages while accomplishing the same social stability and property maintenance objectives of the Deed for Lease program at the same time.

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