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#Occupy the House?

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Posted On: 12/28/2011

QUESTION:

We have neighbors facing foreclosure. Is it possible for them to stay in the home once the lender takes the property? This would be better for the neighborhood because at least the home would be occupied.

ANSWER:

Most lenders do not want borrowers to remain in the property. Instead the usual idea is to get the borrowers out so the property can be resold quickly. In fact, under the government’s Home Affordable Foreclosure Alternatives program borrowers who agree to a deed-in-lieu of foreclosure – a quick way to transfer title back to the lender – can receive as much as $3,000 in relocation assistance.

A notable exception is Fannie Mae’s Deed-For-Lease plan. Under this program the borrower accepts a deed-in-lieu of foreclosure and can stay as long as they’re able to rent at a fair market rate and the rental does not exceed 31 percent of their income.

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The Fannie Mae plan brings in income and keeps the property occupied, which keeps vandals out. It also works for borrowers who can no longer afford mortgage costs but can pay rent. The program generally will not work for those who have lost their jobs or suffered a substantial income loss.

QUESTION:

Is it true that 30-year mortgages might be discontinued?

ANSWER:

It’s hugely unlikely that the availability of 30-year mortgages will end, although a Senate committee actually held hearings on this issue in October.

Long-term mortgages were unknown at the time of the Great Depression. Most homes were then financed with five-year “term” loans. That means every few years you had to get a replacement mortgage, something that could be difficult if you had lost a job or the value of your property had declined.

The introduction of the FHA program in the 1930s made long-term financing popular. It meant borrowers could get a mortgage and not worry that a loan application might be declined a few years later.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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