Financial Advice Blog

Fannie Mae Unveils D4L

For select homeowners who can’t afford their mortgage payments there are still more options to bring much-needed aid. Fannie Mae just released their new Deed for Lease, or D4L, program. It’s a program that allows homeowners to sign a deed in lieu of foreclosure and then rent back their home from the lender. Throughout the time they are “renting,” they can remain in the home and restructure their debt to make it more affordable. The biggest benefit of the D4L program is that it gives struggling homeowners the chance to work with the lending company and proactively find an alternative solution to losing their property.

According to Fannie Mae VP Jay Ryan, the D4L 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.” In addition, the program helps to avert the rise of depressed neighborhoods. In particular, areas like Detroit, Michigan suffered huge amounts of foreclosures at the height of the recession. These areas are now left with vacant and deteriorating neighborhoods. The empty homes leave the door open for vandalism, crime and homelessness. Ryan continued, “Lenders are realizing that foreclosing outright on clients, is not an advantageous option… for the lenders, owners or neighborhoods.”

The D4L Program is Not for Everyone

Although it has its advantages, the D4L program is not for every homeowner. One of the negatives of the plan is that there is a long list of prerequisites a customer must meet before he or she can even apply. The rules and regulations make it a program that few people will be able to really capitalize on. The most in-need homeowners who are having problems with their mortgage payments may still be at a loss for options other than foreclosure. In terms of numbers, the D4L program began in March of 2009 and since that time has only accepted about 2,000 deeds-in-lieu from homeowners in trouble. Considering RealtyTrack reported that there were 343,638 foreclosures in September of this year alone, that isn’t a very good track record for the program.

Critics are also citing that these types of programs are more hype than help. Sean O’Toole, CEO of ForeclosureRadar.com, said a lot of foreclosure programs were “more about the headline than the reality.” Many experts believe the same. They have studied these amended programs and believe that some homeowners may be better off cutting their losses and starting over, rather than working hard to “beat a dying horse,” as O’Toole added.

Is the D4L Program a Reasonable Option?

In the end, like most mortgage products the D4L program’s effectiveness is an individual call. O’Toole said, “For some folks who are living in a house that’s nicer than they ever would have been able to afford, getting more time there is a gift. For some folks who don’t want the disruption of moving, it’s a gift. Others who are embittered by buying a house or convinced to get the loan, get a daily reminder of their folly, or at least what could be perceived as a folly.”

Overall, there are few people who will actually qualify for the D4L. Those who do, must think wisely about whether it’s the best option they could consider. Most experts agree that walking away at times from a mess is the best option for everybody.

Filed under: Financial Advice