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Fannie Mae, which is controlled by the government, is set to give homeowners facing foreclosure a new line of hope. Homeowners on the verge of foreclosure can now rent their homes for a year and beyond. This is a special initiative called the ‘Deed on Lease’ program, which will help the delinquent homeowners stay in their home.

It involves the owners transferring ownership to the company and signing a one-year lease, with a month on month extension after that. This will help owners repay, since many of these delinquent owners don’t qualify for the loan modification program. Through the rent, some part of the repayment can be done. This should not hit the credit rating of the borrowers as hard as the foreclosures would have.

The argument is simple. By foreclosing the property, nobody wins. The bank looses the loan amount, the property price reduces and the owner looses the property. In this new arrangement no one has to move. However, in order to avail this benefit the homeowner should have been staying in the home and it should be their primary residence. They are also required to prove that they would be able to pay the rent decided by the management, as per the existing market price for rent in that locality. This also ensures that there is someone in the home and taking care of the property.

The plan is supposed to be very effective in areas where the homeowners are paying huge amount of monthly payments for homes whose values have reduced considerably. In addition, in such areas the rent rates have been falling as well. Thus, it would be suitable for the homeowners to pay the rent, which should more affordable to them than the actual mortgage repayment amount.

Fannie Mae was forced to develop this option because, otherwise, it would have to use the option of taking over the home ownership. Taking over the home wouldn’t get any money in unless the property sold. By renting the properties, the company definitely stands to earn a regular income.

Despite repeated efforts to help struggling homeowners, the Administration has announced new, aggressive steps designed to help as many as 4 million delinquent homeowners.  The new $75 billion loan modification program has new incentives for borrowers as well as for lenders.

Previous modification plans have not met with success.  Previously, an applicant for modification entered into a trial period to assure the lender that the borrower could meet the modification terms.  Amazingly, only 5% of Freddie Mac loans were converted to permanent modifications.  On a broader scale, as of September 1, 2009, only 1.26% of all trial modifications were made permanent after three months.

In light of the present rate of foreclosures, the modification conversion is surprising.  The number of loans in foreclosure or at least one month in arrears exceeded 14% in the third quarter 2009.  Banks are under pressure to entertain and permanently convert loans.

A scale of incentives, including direct mortgage reductions, and annual initiatives are expected to raise interest from lenders and borrowers alike.  As of November 2009, only 650,000 Americans have received temporary modifications. 

The administration has recently taken more aggressive steps to assist homeowners achieve a temporary modification while completing documentation to apply for permanent adjustments. The paperwork process is cumbersome.  The administration has lessened the documentation requirements and has even hired independent firms to go door-to-door to assist troubled homeowners.

To qualify for the modification program, an applicant must have a mortgage of less than $729,750 and must show monthly payments above 31% of their pre-tax income.  It is best to begin the process before entering default status.  Citigroup has just 1800 borrowers who have converted their temporary modification program to a permanent plan.  The Citigroup service has 89,000 applicants in temporary status.

Lenders like Citigroup and Chase have retained outside services to attempt to stave off foreclosures.  It seems that many homeowners do not know where to turn and choose to ignore the pending foreclosure actions. Help is out there!