I found out the other day, via the Orange County Register, that mortgage giants Fannie Mae and Freddie Mac introduced late last year new guidelines of their deed-in-lieu program to help struggling borrowers who relinquish their homes to live in them temporarily without having to make mortgage payments.
These new guidelines took effect March 1.
The guidelines are meant to help those facing hardships such as job loss, illness, or death of a spouse. In the past, borrows typically had to be delinquent before they could qualify for such help. Now, homeowners can turn over the house keys and erase their debt even if they are still current on their payments.
Some homeowners can be released from their mortgages with the option of living in the homes payment-free for up to three months. These new guidelines also streamline the process allowing the banks to qualify for the mortgage release without having to seek case-by-case approval from Fannie Mae and Freddie Mac.
Presently, Mae and Mac guarantee about 70 percent of mortgages in the United Sates. Both are in the process of winding down as policymakers look at revamping the mortgage market. These new guidelines are aimed to avoid foreclosures and place these properties on the market more quickly. Homeowners must leave their homes in a good condition. In turn, they receive some time to make the transition and take less of a hit on their credit.
Another part of the program gives the borrower an option that has been available for a few years: paying rent to stay in the home for up to a year.
Fannie Mae spokesman Andrew Wilson has said, “If foreclosure can be prevented, it’s good for the borrower, it’s good for Fannie Mae, it’s good for the taxpayer, and it’s good for the neighborhood where that home is and view it as saving money and reducing losses.”
California is a non-recourse state. That means after a foreclosure or short sale the lender on a purchase money mortgage has no right to the borrower’s wages or assets. But a lawyer for Freddie Mac said the law does not prohibit contributions from borrowers who engage in a deed-in-lieu.
Anything new takes time to determine its effectiveness. Some question the timing in light of the winding down of Mae and Mac which was put into conservatorship a few years ago to help shore up the nation’s crashing housing market.
Why now, after the worst is behind us, are they giving on-time paying borrowers who happen to be underwater this option? Many believe this probably has a lot more to do with reducing Mae and Mac’s balance sheets of perceived toxic loans that are going to be hard to offload.
Whatever the case, what we are experiencing is not a normal comeback. It appears to be government caused appreciation which could end with a single policy change. Again, please receive advice from a trusted real estate attorney and/or a CPA tax advisor before you buy or sell anything.
If you have questions regarding this and/or other real estate matters, contact Mike Mason, Broker/Owner of Mason Real Estate DRE: 01483044, Board of Director of your Southwest Riverside County Association of Realtors® (SRCAR), Short Sale & Foreclosure Resource certified by National Association of Realtors® (NAR) at [email protected] or (951) 296-8887.