To qualify for the program, borrowers have to have mortgages insured by Fannie Mae, be unable to qualify for President Obama’s mortgage modification program, and be unsuccessful renegotiating with their lenders. While eligible borrowers would have to voluntarily give up the deeds to their homes, they would be able to stay for at least a year, providing that they paid the market rate rent. Rents would then be renewable on a month-to-month basis. Eligible borrowers must document that the new market rate rent is no greater than 31% of their gross income to qualify for Deed for Lease.

The Deed for Lease program is an extremely interesting and valuable way to keep delinquent borrowers in their homes, or merely to allow time for a transition. The program may be especially valuable for families with children, whom they do not want to remove from their schools in the middle of the year. It will help give families more time to come up with options. It will also help underwater homeowners– especially in areas that have seen property values drop significantly.

Furthermore, since tenants of qualifying borrowers are also eligible for the program, Deed for Lease will help tenants whose landlords face foreclosure. As a result, it appears that, though Fannie Mae provided no estimates for how many borrowers will be eligible for the program, Deed Lease looks to be a promising alternative to severely delinquent borrowers with Fannie Mae loans facing foreclosure–and for their tenants.

More information about the program can be found at www.efanniemae.com.

The US House of Representatives

The new homebuyer’s tax credit extension that we have discussed extensively in the past week was passed by the House of Representatives today. Now that the bill has been passed by Congress, it will go to President Obama for his signature.  The bill passed by a vote of 403-12 after it unanimously passed in the Senate. The bill is expected to be signed into law by the President tomorrow.

For more posts on this topic, please see:

Breaking News: Deal Announced to Extend New Homebuyer’s Tax Credit Through April 2010

Reflecting on the Impact of an Extended Tax Credit

October 2009:

1. Wells Fargo

2. Bank of America

3. MetLife Bank

4. Financial Freedom Acquisition

5. One Reverse Mortgage

6. 1st AAA Reverse Mortgage

7. First Mariner Bank

8. Security One Lending

9. Harvard Home Mortgage

10. Stay in Home Mortgage

Fiscal Year 2009:

1. Wells Fargo

2. Bank of America

3. World Alliance Financial Corp

4. Financial Freedom

5. One Reverse Mortgage

6. MetLife Bank

7. Countrywide Financial

8. Generation Mortgage

9. Urban Financial Group

10. 1st AAA Reverse Mortgage

Thus, from last year’s top 10, only 6 remain in the top 10 for October. The complete list for October can be found on the HUD website. The changes will also be reflected on the Reverse Mortgage Guides website in the Lender Directory in the near future.

Therefore, while only 9,473 reverse mortgages were endorsed by the FHA in September, up from 8,933 in August, the number appears poised to climb in October and November, as those who applied before the principle limit factors fell 10% on October 1st complete their applications. It is also interesting to note that the number of purchases and refinances made up a very small percentage of the reverse mortgages endorsed, with 137 HECMs for Purchase and 790 HECM Refinances endorsed in September.

Finally, as the fiscal year ended, it is good to see that the FHA’s predictions were fairly in line with the actual results.  162,619 HECM applications were filed, as opposed to the 165,000 projected in FY 2009. Of those, 114,691 HECMs were endorsed in FY 2009. This is an increase of 2.3% from last year, though still below the projected 119,700 endorsements. Nonetheless, it appears that the reverse mortgage industry grew in FY 2009, despite the recession, and appears poised for a strong beginning to FY 2010.

APR:

HECM LIBOR 225: 2.494

HECM LIBOR 250: 2.744

HECM LIBOR 275: 2.994

HECM LIBOR 300: 3.244

Expected Rates:

HECM LIBOR 225: 5.91

HECM LIBOR 250: 6.16

HECM LIBOR 275: 6.41

HECM LIBOR 300: 6.66

The HECM LIBOR APR remained almost unchanged for the sixth consecutive week. However, the expected rates continued to rise. This week saw a dramatic increase by .08 for the borrowers.  It will be interesting to see when the APR finally changes, and, when it does, whether the expected rates will adjust is the same direction.

I have been thinking about the deal all weekend, and I worry about its effects. While the goal of the credit is to strengthen the market and help bring home prices back up, increasing income requirements and adding a tax credit to incentivize trading up seems like it risks exacerbating the current problems in the housing market.  Many of the current problems in the housing market have been created by homeowners (many first-time homeowners) taking out mortgages that were more than they could afford to pay in order to buy homes. Even when they could afford the mortgage, the recent economic problems have led many to be out of work or find their401(k)s and pensions to be less than they had expected. Consequently, the number of foreclosures and mortgage delinquencies reached all time highs in recent months.

In light of these developments, some proposed that maybe homeownership should no longer be an essential part of the American Dream.  It was argued that it is a disservice to put people into homes they cannot afford. While the tax credit is not a very large sum of money, it is enough money to push individuals to act in uncertain times.  A realtor in Portland, ME commented that nearly 70% of their clients were motivated by the tax credit. Yes, the housing market could use a boost, but when individuals are making a significant long-term financial decision for a short-term financial incentive, it seems like many poor choices can occur.

Reverse mortgages and refinances are available to help homeowners who find themselves over-extended, but reverse mortgages are only available to those over 62, and refinances and short pays have been extremely hard to get.  To avoid another housing crisis, the government does need to stimulate the market, but putting more borrowers into homes they cannot afford does not seem to be a safe way to do so.

The extension of the tax credit is expected to cost the government $10.2 billion, which will be offset by delaying a tax-break for U.S. based international corporations from 2010 to 2017.

The extension of the tax credit (as well as the new credit for current homeowners) is expected to help the housing market and real estate industry bounce back from the housing crisis.  It is hoped that the tax credit, which has been successful in the past year, will help the market return to its former strength in 2010.

Many in the industry appear to be hopeful that the bill will be passed before the limits expire.  It is probably too early to become extremely concerned about the expiring limits, but with the bill needing to pass through both houses of Congress, it is something to keep an eye on.

This is not the first time we have seen mixed housing data. While it is easy to speculate on the ups and downs of the market, only time can tell whether the bumps are telling of actual trends or merely slight deviations from the mean.  This month, all the positive data about home prices and existing home sales, as well as climbing orders for long lasting goods, show that the industry may be beginning to recover, even if that recovery is a slow one with some set backs along the way.