News Release

November 5, 2009

Fannie Mae Announces Deed for Lease™ Program

WASHINGTON, DC — Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

“The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Vice President of Fannie Mae. “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”

The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

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

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

For additional information about the Deed for Lease Program, including full details on program eligibility, please review the Guide Announcement on

I talk to clients all of the time who would like to “move up” and take advantage of lower home prices and interest rates but they can’t sell their current home so they decide to rent it.

I decided to post the FHA guidelines for just this scenario so I hope this helps.

This is straight from FHA’s guidelines

September 19, 2008



SUBJECT:    Converting Existing Homes to Rentals—Underwriting Instructions

Through this Mortgagee Letter, the Federal Housing Administration (FHA) takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHA’s ability to help new homeowners.

Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence.  This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace.

Due to FHA’s concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages.  Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter.   The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken.  This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has an equity position not likely to result in defaulting on the mortgage on the property being vacated.  In either case, this guidance is directed to preventing the practice known as “buy and bail” where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage.  Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure.


Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see may be considered in the underwriting analysis under the following circumstances:

  • Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance.  A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required.  FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.

  • Sufficient Equity in Vacated Property:  The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.  The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.

The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence.  This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).

It is important to note that if the property being vacated had a mortgage insured by FHA, eligibility for a second FHA insured mortgage can only occur under the exemptions described in handbook HUD-4155.1 REV-5, paragraph 1-2.

Things to remember during the home buying process.

Here are some common mistakes people make during the approval process that has cost them their new home loan.

1) Make sure you continue to pay ALL of your bills on time and do not open any new accounts. These actions will cause your score to drop.

I have had 2 clients in the past 6 months lose their financing for forgetting to pay a $25 per month credit card bill! Not only are lenders looking at your credit scores but they are also looking at your payment history. Even if the score doesn’t drop enough to knock you out, the payment history may.

2) Do not change jobs if at all possible. Try to wait until after you close on your new loan. If it’s too good of an opportunity to pass up, let your lender know as soon as possible so they can make arraignments and prepare the underwriter. You will be required to provide more paper work so keep that in mind. Your employment is a key factor in the mortgage approval process, and if you can’t show steady gainful employment, you might be denied.

3) Do not change financial institutions during the approval/underwriting process. Even if you hate your current bank, tough it out until after closing. You’ll have to provide information about previous accounts that are now closed, and therefore inaccessible. And if you diversify your money too much in money market accounts, savings accounts, checking accounts and other places, you’ll have a harder time with the disclosure process.

4) Hold off on any and all large purchases. Don’t go out and buy that new plasma TV or living room set until after you are in your new home.  Until you are actually closed the underwriter will follow very specific steps including verifying and re-verifying everything at different points throughout the process. Any large purchases will affect what funds you have available that may be required for your down payment, closing costs or reserves.

Here is what I really want you to remember. If you plan on buying a home, make that your priority. Be ready to provide everything your lender requires at a moments notice.

If you don’t try and take on more than one life changing event at a time, your home buying experience will be smooth.

RESPA Reform Coming Soon

The Department of Housing and Urban Development (HUD) has passed new regulations amending Regulation X, the regulations that

implement the Real Estate Settlement Procedures Act (RESPA).

On January 1, 2010, HUD will require that lenders and mortgage brokers provide borrowers with a new standard Good Faith

Estimate (GFE) that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide

borrowers a new HUD-1 Settlement Statement that clearly compares the borrower’s final and estimated costs.

Main Components of RESPA Reform:

> Re-defines an “Application” for 3-day disclosure purposes

• Must contain at least the following 8 items, and borrower must indicate intent to apply:

– Name

– Gross Monthly income (if applicable)

– Social Security Number

– Property Address

– Estimate of property value

– Loan amount being sought

– Interest Rate

– Product Type

> Prohibits collection of fees (except for credit report) prior to borrower’s receipt of GFE

• GFE must be issued within 3-business days of an application as defined above

> New standardized Good Faith Estimate (GFE) form

• Allows borrower to easily compare GFEs from various lenders when shopping for a loan

• Will be three (3) pages and include rate/lock information in addition to fees

> HUD Mandated Tolerance Limitations on Fees/Charges (varies according to three classes of fees/charges)

• Unless there is a valid “Changed Circumstance” (list to be published at a later date), lenders/brokers are prohibited

from exceeding certain fee tolerances from most recent GFE to settlement

• Zero Tolerance—certain charges cannot increase at settlement

• 10% Tolerance—the total of charges in this class can increase up to 10% at settlement

• No Tolerance Limitation—certain charges can increase at settlement

> Amends yield spread premium disclosure requirements

• The new GFE section, “Your Adjusted Origination Charges”, must disclose all lender and broker fees/credits,

including yield spread premium (YSP)

> New HUD-1 Settlement Statement

• Revised to be comparable with the new GFE

• Added page that compares HUD-1 to the GFE

• Highlights key loan terms

What is an FHA Mortgage Loan?

FHA Mortgage Loans are quickly becoming one of the most popular loan programs nationwide.  FHA mortgages are often called government home loans because they are insured by HUD against default so they are a stable option with low rates and typically a fixed interest rate that includes principal reduction as part of the payment each month.

FHA has been around for decades, and there are many innovative programs to help different segments of the population to realize the dream of home ownership.  For example, the teacher-next-door program allows teachers to buy a home in particular neighborhoods at 50% of the sales price with an FHA mortgage loan, and FHA will pay the other 50%.  The FHA Kiddie Condo program allows a parent or other blood-relative to co-sign for their child on the purchase of a home or condo. We also offer the FHA rehab loan. Contact us for more information on this great FHA mortgage loan. These are just a few examples of the many programs that FHA offers.

If you currently have an FHA loan, the FHA Streamline Refinance program is a fast and easy way to lower your payment or refinance out of your adjustable rate FHA mortgage loan.  No appraisal, no credit check, and no income or asset documentation make this program hassle-free.

What is an FHA Pre-Qualification?

If you would like to buy a home, an essential step before you start looking is to get pre-qualified.  This means applying with a lender and going through a credit check as well as some documentation to verify income and down payment source.

Once this has been done, we will issue you a pre-approval letter which you will submit with your offers on a home to let the seller know you have the financing lined up.  Our FHA mortgage loan experts are standing by to help you get pre-approved or to answer your questions now!