Own-to-rent: turning mortgages into leases
Fannie Mae recently announced a new program designed to keep mortgage-challenged borrowers in their homes. The Deed for Lease (D4L) program allows qualified borrowers to relinquish the deed to their property and rent their home at the market rate for 12 months.
Here's how Deed for Lease works: Before a borrower is eligible to rent their home under Deed for Lease program, they must have a deed in lieu of foreclosure agreement (DIL) in place with Fannie Mae. This agreement means that a borrower facing foreclosure and has agreed to give the title to their property back to Fannie Mae in order to satisfy the terms of their mortgage.
Basically, it's an agreement that says, "Take my house and we'll call it even on the mortgage."
Penalties may apply -- a ding on the borrower's credit report for one -- but those penalties will be less harmful than a normal foreclosure.
Once a borrower is deemed eligible for a DIL agreement that gives Fannie Mae the green light, the government-sponsored entity will contact a property manager to initiate the D4L process with the borrower.
If the borrower agrees to rent his home, the property manager will:
Review the leasing conditions
Determine if the borrower qualifies under the terms of the D4L program Inspect the property
Approve the lease
The property manager will also set the rental rate for the next 12 months.
Essentially, Fannie Mae will outsource the administration of the new leases to a third-party property
