Media Advisory: Fannie Mae Adopts Limited Right to Rent Policy

For Immediate Release

Contact: 

Alan Barber, (202) 293-5380 x 115

Media Advisory: Fannie Mae Adopts Limited Right to Rent Policy

WASHINGTON - 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."

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The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.

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