November 5, 2009
Fannie Mae Adopts Limited Right to Rent Policy
Center for Economic and Policy Research Co - Director Dean Baker issued the following statement on Fannie Mae’s Deed to Lease Program:
“Fannie Mae, the country’s largest mortgage holder, announced today that it is adopting a version of a “right to rent” policy under which foreclosed homeowners will be allowed to stay in their home paying the market rent. Under Fannie Mae’s Deed for Lease Program, foreclosed homeowners will be offered a lease of up to one year, in exchange for turning over the deed to their home. The lease will be at the prevailing market rent.
This offer will be made in cases in which the homeowner is not eligible for a mortgage modification. The homeowner must also demonstrate that the market rent will be less than 31 percent of their income.
This policy takes advantage of the fact that in many former bubble markets, ownership costs are likely to be far higher than the cost of renting an equivalent unit, if the homeowner purchased their home near the peak of the market. In many cases this gap can be dramatic. For example, the savings on a moderate-priced home purchased near the peak of the market in the Washington, DC area could more than $1,300 a month. The gap between ownership costs and renting in the Los Angeles area could be almost $2,000 a month.
Many homeowners who could not sustain mortgages based on the original purchase price, even with sharp reductions in interest rates, can afford the market rent. The Deed for Lease Program is a very big step toward giving these families housing security in these situations. 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.
However, the policy only provides limited security. It offers a one-year lease with a possibility of renewal. It would be preferable for the guaranteed lease period to be substantial longer (e.g. 5-10 years). This would give former homeowners real security in their homes. This longer lease period could be made contingent on timely rent payments and proper upkeep and other factors, but families should know that they have the option to remain in their home for a substantial period of time, not just a year. Nonetheless, the new policy by Fannie Mae is an important step forward in dealing with the housing crisis.”