More government generosity: Let foreclosed homeowners rent their former houses

Earlier this year renters living in investment homes with government backed mortgages were allowed to stay in their units after foreclosure. The goal was to avoid the unwelcome and unexpected sheriff's knock at the door to vacate the premises.

Now Washington is getting even more generous (with other people's money) by letting homeowners themselves rent from the very banks that just confiscated their homes:

Giving troubled borrowers yet another way to avoid foreclosure, Fannie Mae said on Thursday it would allow eligible homeowners to rent their own homes.The Deed for Lease program lets homeowners transfer the deed back to their lender and then sign a lease to remain in the home.

The effort is aimed at borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification. Borrowers must live in the home as their primary residence and must be released from any subordinate liens.

One serious complication jumped from this story. If the bank sells the house post foreclosure, the new homeowner has to honor the rental agreement with the former homeowner. Unless you're already in that business, who wants to be a compulsory landlord?

What a tangled web we weave when first we practice to appease.

Comments

[Frank Lee]

You can throw all your vitriolic cynicism at this article all you want, however, if the lender is able to side-step a year-long foreclosure process, assist in unclogging the court systems, and possibly retain some capital in the meantime, I see this as a win-win-win.

Nobody's holding a gun to the heads of potential buyers for these properties. You have to assume if they plunk down their money, they are happy with the terms - lease, et al.