The director of Fannie Mae’s (FNM: 0.00 N/A) deed for lease (D4L) program outlined the initiative during Thursday’s Texas Mortgage Bankers Association (TMBA) servicing conference.

Miguel Gutierrez said the goal of Fannie Mae is to minimize family displacement for borrowers that participate in a deed-in-lieu of foreclosure program, launched early in November 2009, while managing it in a way so as to not put any undue pressure on Fannie’s ever-growing rental portfolio.

The homeowner-turned-renter is required to pay fair market rent to stay in their home for up to 12 months. The renter must have enough income to sustain a 31% income-to-rent ratio and rental payments are not subsidized by Fannie Mae, but could include renters eligible for Section 8 payments.

As an example, Gutierrez outlined the situation for a fictional family that purchased a $275,000 home in Phoenix with a $247,500 mortgage and a down payment. Including homeowner association (HOA) fees, their monthly payment was $2,050. While those payments were manageable five years ago, the sample borrower had reduced income from his job and HOA fees had increased. Unable to pay their mortgage, the borrower joined the D4L program, reducing their rent to $1,000 while the family continues to look for additional income and/or alternative housing.

The upside of the program for Fannie Mae, Gutierrez said, is promoting neighborhood stabilization, mitigating real estate owned (REO) costs and provides the opportunity to consider other REO strategies, such as maintaining longer rental terms.

“With these benefits to Fannie Mae and borrower, we find the deed for lease program is an effective solution for these properties,” Gutierrez said.

There are some requirements for the new renters’ eligibility. Property managers inspect the home to ensure it is well maintained, generally an indication the renter will continue to keep the property in good repair during the lease term. The house must be eligible for lease; many times HOA rules don’t allow a home to be rental properties.

The program marks a significant shift in the strategy for the government-sponsored enterprise. Whereas Fannie Mae would previously dispose of properties in a traditional REO sale, now Fannie is becoming a landlord. Gutierrez said that’s a position Fannie is prepared to be in for the near future.

“We’re building a rental portfolio and the strategies are going to differ depending on the market. In some markets we’ll take a long view and want to hold onto the rental properties for some time,” he said. “In other markets, we may decide to reduce in our inventory. But in some cases, it’s possible some of these tenants will be able to stay in these homes for a few years.”

Those attending the presentation had many questions. Gutierrez said the agreement is recorded on the renter’s credit record the same way a traditional deed-in-lieu of foreclosure would be. The lease agreement gives Fannie Mae the ability to market the home for sale, but for now, Fannie policy is not to do so during the initial lease period.

The biggest barrier in the program is varying and limited deed-in-lieu laws in different states. “There’s excitement on the side of borrowers and servicers, but there are deed in lieu issues,” Gutierrez said.

The program could get a boost from the Home Affordable Foreclosure Alternative (HAFA) program, which offers incentives to servicers and second lien holders to consummate deed-in-lieu transactions. Gutierrez said Fannie hopes its program will benefit from increased workouts incentivized by HAFA.

Write to Austin Kilgore.

The author held no relevant investments.

One of the biggest reason short sales fall through, according to JK Huey, a vice president at Wells Fargo (WFC: 29.60 +1.89%), is that real estate agents do not regularly pre-check buyer access to finances.

Instead, agents assume buyers can get the money, but often this isn't the case, she said, speaking at the Texas Mortgage Bankers Association servicing conference being held today in Grapevine, TX.

"We want to encourage clients to obtain a credit-check before," Huey said, adding that the lender is looking to streamline the short sale process to "around 30 days."

This would include satisfying any second liens, investor concerns and other mitigating circumstances, such as accurately valuating the property.

"We get some low-ball offers," that also slow down the process, she said.

Wells Fargo is willing to put distressed borrowers through their own short sale process, in cases where they don't qualify for HAFA. In this case, the servicer will still need a promissory note for investors, mortgage insurance companies and junior-lien holders that shows financial obligation to these firms are met.

Wells, recently gave a general commitment for second lien write-downs, along with the other top three mortgage servicers in the country.

"We are committed to do all we can to get the customer through their disruption and keep them in their homes, but our commitment is to partner with you to help these customers transition smoothly," Huey added.

Huey's comments were well-received by the audience, though in the question and answer session, one audience member asked for clarification on the timeline.

"In reality we are waiting months," said the attendee. "I think it's popular Realtor opinion that this [bank] department doesn't talk to that [bank] department. We had four short sale offers and three went to foreclosure."

Huey responded that there are many pieces to HAFA short sales. And generally if a home is closer to foreclosure it will make sense to go ahead and foreclose. A property must not only be owner-occupied but also not be close to foreclosure, in order to qualify for HAFA, which adds another layer to the process.

Write to Jacob Gaffney.

Disclosure: the author holds no relevant investment positions.

Founder, president and CEO of home retention services provider HEART Financial Services, Gerald Alt, opened his statements at the 6th annual Texas Mortgage Bankers Association (TMBA) Southern States Servicing Conference, with a joke.

"What's the difference between a lightbulb and a HAMP mod?" he asked the attendees of a session over imminent default.

"You can unscrew a lightbulb."

The joke earned a few chuckles throughout the ballroom-style conference room at the Gaylord Texan Resort in Grapevine. The punchline spoke to the heart of key issues facing mortgage servicers participating in the Home Affordable Modification Program (HAMP).

When HAMP was created a year ago, Alt noted, the Treasury Department identified 4-7m borrowers that might qualify for mortgage help. Considering continued low house values and high un- and under-employment, Alt said "let's double that number."

Despite the overwhelming volume of troubled borrowers, Alt noted HAMP requirements leave many borrowers behind, particularly those with second liens or investment homes, as well as those that are not yet delinquent.

And servicers are not equipped to handle the front-end outreach required to identify borrowers at risk of imminent default, and offer the assistance necessary to qualify them for HAMP.

"Every mortgage servicing platform was not designed with today's economy in mind," Alt said, adding that platforms were largely created as payment collectors and not borrower outreach services.

Compounding the challenges facing HAMP servicers are the varying definitions of "imminent default," according to the government-sponsored enterprises (GSEs). The definitions range in terms of stage of delinquency, cash reserves and additional debt obligations.

HAMP servicers are also faced with the challenge of "distressed" borrowers that are not yet delinquent — and therefore do not qualify for HAMP. For instance, Alt said, a borrower can "raid" his or her 401k, retirement funds and savings in order to remain current on mortgage payments.

By doing so, the borrower risks bankruptcy for the sake of remaining current on mortgage payments, Alt said. To the servicer, as long as the borrower remains current, the evidence of distress is unclear until cash reserves run out and the borrower can no longer pay.

And in other circumstances where borrowers are significantly underwater, owing more on their mortgages than their homes are worth, servicers cannot anticipate the "strategic default" mentality, when a borrower chooses to walk away from an underwater mortgage obligation.

"I was raised to think I have an obligation to pay," Alt said. "Unfortunately, many people don't learn that from their parents."

There are some analytics services out there that attempt to help servicers anticipate the risk of imminent default, Alt said. But in the case of many borrowers who simply do not pick up the phone and contact their servicers, "they don't want help," he said.

Read more on the way servicers are adapting infrastructure and technology to meet the wave of distressed assets in HAMP in an upcoming issue of HousingWire magazine.

Write to Diana Golobay.

Mortgage rates ended a weeks-long run of increases in two weekly surveys.

The Freddie Mac (FRE: 0.00 N/A) survey put the average rate for a 30-year fixed-rate mortgage (FRM) at 5.07% with a 0.6 origination point for the week ending April 15, down from last week’s average of 5.21%. A year ago, the average rate was 4.82%.

“After rising for four consecutive weeks, mortgage rates eased back to where they were two weeks ago and still remain historically low,” said Frank Nothaft, Freddie Mac vice president and chief economist.

The Bankrate.com survey of large banks and thrifts put the average rate for a 30-year FRM at 5.21% with a 0.38 origination point, down 14bps from the previous week’s average of 5.35%.

“Low mortgage rates continue to help stabilize the housing market. The Fed noted that residential activity increased while home prices were stable across most of its 12 Districts over the six weeks prior to April 5th,” Nothaft said. “In addition, credit standards remained generally unchanged across the nation, while credit quality was mixed according to the report.”

Freddie said the 15-year FRM averaged 4.4% with an average 0.7 point, down from last week when it averaged 4.52% and one year ago, when the average was 4.48%. Bankrate.com put the average rate for a 15-year FRM at 4.56%, down from last week’s average of 4.69%.

Freddie said the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.08% with an average 0.6 point this week, down from last week when it averaged 4.25%. A year ago, the 5-year ARM averaged 4.88%. In addition, Freddie said the one-year Treasury-indexed ARM averaged 4.13% this week with an average 0.5 point, down from last week when it averaged 4.14%. At this time last year, the 1-year ARM averaged 4.91%. Bankrate.com put the average five-year ARM rate at 4.48%, down from last week’s average of 4.5%.

There was considerable concern that mortgage rate would skyrocket at the conclusion of the Fed’s $1.25trn mortgage-backed securities (MBS) purchase program. And for a few weeks, with rates continuing to climb, it seemed like that was the case. But this week’s results change that.

“People think the (economic) recovery is happening, but it's not happening,” said Michael Moskowitz, president of Equity Now, a mortgage bank based in New York City in an interview with Bankrate.com.

“Inflation is down, the recovery is not as strong as they think it is, the market's up. I just think that we are in for five, 10 years of quote-unquote 'Japan,' and that means lower rates,” he added, referring to Japan’s “Lost Decade” of economic stagnation in the 1990s.

Write to Austin Kilgore.