|help families recover » prevent displacement|
|An approach that goes by several names -- rentback, right-to-rent, own-to-rent, or own-to-rent-to-own -- can enable at-risk homeowners to stay in place after foreclosure and rent the property back from the new owner at market rates. The term “rentback” describes the broad approach, while the other names are better used for specific variations. Rentback approaches fall into one of three broad categories: (1) own-to-rent programs that help owners rent their former home from its new owner, (2) own-to-rent-to-own programs that help owners eventually re-purchase the property after renting it and rebuilding their credit, and (3) right-to-rent laws that create a right to rent the property back at market rates for a specified period of time after foreclosure.
Both Fannie Mae and Freddie Mac offer own-to-rent programs to help keep former owners in place after foreclosure. Fannie Mae’s program, Deed for Lease, allows owners to reduce the damage to their credit through a deed-in-lieu-of-foreclosure and then rent the property back with a 12 month lease at market rents. Freddie Mae’s program, called the REO Rental Initiative, gives former owners the option of staying in place with a month-to-month lease. Communities can help to increase awareness of existing own-to-rent options and may also consider implementing programs that acquire owner-occupied properties in foreclosure and rent them to the former owner. An own-to-rent-to-own approach is similar, but uses a lease-purchase model to eventually allow the former owner to repurchase the home on sustainable terms.
The right-to-rent approach was developed by the Center for Economic Policy and Research and was introduced in Congress in 2010 but was not enacted. As of April 2010, bills to adopt this model were introduced in the Arizona and New Jersey legislatures. (Pelletiere 2010), though ultimately neither passed. Click here to go to the Center for Economic Policy and Research website for more on this strategy.
Fannie Mae offers a variation of the rentback model for renters, called the Tenant-in-Place rental policy. The Tenant-in-Place policy enables renters living in foreclosed properties to enter into a new 12-month lease with Fannie Mae at market rents. Depending on households’ lease terms at the time of foreclosure, opting to participate in this program may or may not be helpful for renters. A 12-month lease could extend stability beyond what tenants are entitled to under the PTFA, but it could also raise the rents if the rents in the existing lease were below market. Communities may wish to expand tenants’ options after foreclosure by negotiating with other loan servicers to adopt a policy similar to Fannie Mae's. Click here to view a fact sheet on Fannie Mae’s Tenant-in-Place Rental policy.
Another approach to keeping families in their homes after foreclosure involves not renting the property back, but selling it back to them after foreclosure. A program in Boston, described in the Solutions in Action on this page, pre-qualifies households facing foreclosure to purchase their home at its current value with a 30-year fixed rate mortgage. By allowing the home to go to foreclosure, the organization running the innovative own-to-own program can get a deep enough discount on the mortgage to make the program possible.
|Solutions in Action|
|Boston Community Capital|
In the fall of 2009, Boston Community Capital (BCC), a community development finance agency (CDFI), launched the Stabilizing Urban Neighborhoods (SUN) initiative to purchase homes at foreclosure sale and resell them to their current residents (whether a renter or the former homeowner) with a 30-year fixed rate mortgage. This process helps eligible homeowners or renters stay in their home at payments they can afford, and stabilizes neighborhoods by ensuring that foreclosed homes remain occupied and in productive use.
The SUN initiative works with homeowners and renters that are going through the foreclosure process, but have not yet been displaced from their home. Clients are referred to SUN by partner organizations that offer housing counseling and legal aid. If clients qualify for the program and have sufficient income to re-purchase and maintain the property, SUN Initiative staff will make an offer to the lender or servicer to buy the home with cash at market value. Along with the offer, they include data on comparable distressed home sales and to show that they are offering a fair price. BCC reports that between October 2009 and April 2010, the SUN initiative successfully negotiated the purchase of over 60 homes at an average discount of 53 percent off the original mortgage. SUN Initiative then re-sells the home back to its clients at market rate. For former owners but not renters, the re-sale terms include a shared appreciation second mortgage equal to the difference between the owner's original mortgage and the re-purchase price. Any appreciation above the re-purchase price is divided between the owner and Boston Community Capital to ensure that the SUN Initiative does not lead to a windfall if home prices rise sharply in the future.
Boston Community Capital has raised almost $50 million for this initiative, all from private investors, which is estimated to finance up to 2,000 housing units over five years. As of February 2011, 100 families at risk of losing their home have qualified to participate in the program to buy back their home.
Click here to read more about the SUN initiative [PDF] or click here to go to Boston Community Capital’s website.
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Dealing with displacement