Open House by Jim Woodard

Families who are facing imminent foreclosure and loss of their home might qualify for a special program that would keep them in their home.

A Deed-for-Lease program was implemented in November by Fannie Mae, a major government-sponsored buyer of existing home mortgages. It's a rather simple procedure where the qualified homeowner voluntarily transfers the deed to his property back to the lender, simultaneously signing a lease to the property.

The individual or family becomes a tenant rather than an owner. But they remain in the home and escape the trauma and inconvenience of relocating.

"This program helps eliminate some of the uncertainties of foreclosure, keeps families and tenants in their homes during the transition period and helps stabilize neighborhoods and communities," said Jay Ryan, vice president of Fannie Mae.

The program is primarily designed for borrowers who do not qualify or have not been able to obtain a modification or workout solution to solve their financial problems. Under the Deed-for-Lease program, borrowers transfer their property to the lender by completing a "deed in lieu of foreclosure" document, and then lease back the property at the current market rental rate.

To participate, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers may also be eligible under the program. Borrowers and tenants interested in a lease must be able to document that the current rental rate is no more than 31 percent of their gross income.

Leases may be up to 12 months, with the possibility of a term renewal or month-to-month extension after that period. A Deed-for-Lease property that is subsequently sold includes an assignment of the lease to the buyer.

Those are the basics of the program, and it's turning out to be very helpful to many homeowners who can't afford to keep making those monthly mortgage payments. But, as with all such programs, it involves a lot of frustrating paperwork. For more details, consult your lender.

Q: Why are FHA loan ceilings so low?

A: There has been a lot of pressure from consumers and real estate brokers in areas where home prices are exceptionally high to raise the maximum limit of FHA-insured loans.

FHA and the Department of Urban Development (HUD) have tried to accommodate this need, but in the process they have caused much confusion.

"Recent reports about FHA loan limits have created the mistaken impression that federal loan limits allow loans up to $729,750 anywhere in the country. This is simply not true," said Barney Frank (D-Mass.), chairman of the House Financial Services Committee. "In fact, there are only 77 counties where an FHA loan as large as $729,750 can be made, and less than 2 percent of FHA's outstanding loan portfolio consists of loans that exceed $417,000, the previous conforming loan limit."

The average FHA loan made in fiscal year 2009 was only $185,278, Frank noted. "FHA has and will continue to focus on loans to middle and lower income families. Real estate markets have very localized characteristics and a single national standard makes no sense."

The primary reason Congress recently changed FHA practices to allow higher cost loans was to ensure that affordable mortgage credit was available to middle income families in areas with higher price homes. Several years ago, administration officials came before Congress to testify that FHA was effectively out of the market in major portions of the country because the restrictive one-size-fits-all national ceiling was well below median home prices in those areas. Congress changed the law to allow FHA to finance higher cost homes in higher cost areas, Frank pointed out.

"This is not a new approach," Frank said. "The law already permitted FHA loans to be 50 percent higher in Alaska and Hawaii because of higher home prices in those areas. For decades, home price and income limits have been in place for various HUD and mortgage revenue bond programs in order to reflect varying local area characteristics," he noted.

It's important to keep in mind that Congress retained the longstanding FHA provision that limits loans in all areas based on the median home prices in those areas. In markets where the median home price is low, the FHA limit is correspondingly low. In the majority of counties, the FHA loan limit is only $271,050. That's the nationwide FHA loan floor.

"Instead of presenting a financial threat to FHA, allowing higher priced loans brings more geographical diversification to FHA. A recently completed audit of FHA concluded that higher cost loans actually have a lower claim rate than lower cost loans," Frank said.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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