Homeowners may be able to rent rather than lose home to foreclosure

If you're having trouble making your mortgage payments, but want to stay in your home, you may get the option if your loan is held by Fannie Mae. Fannie Mae announced a new program recently that will allow you to stay in your home as a renter if you hand back the deed to the lender.

This new "Deed for Lease Program" will allow families to stay in their home rather than being displaced. It will also help to stem foreclosures and prevent further deterioration of neighborhoods filled with vacant foreclosures, according to an announcement from Frannie Mae.

Here's how it works:

• Your loan servicer must decide that you qualify for a "deed in lieu of foreclosure." Basically, what you'll do if you are in default on your loan, is voluntarily give the deed back to the lender, which helps the lender avoid a drawn-out foreclosure process. Traditionally this is considered less damaging to you and your family than foreclosure, but it can still have severe impact on your credit score. But the good news is that you don't have to move your family.


• You will be turned from a home owner with a mortgage you can't afford into a tenant who can rent the home at the home's current market rent. That rent can't exceed 31 percent of your monthly gross income. You must document your income to qualify.


• You cannot have 12 or more past-due payments on your mortgage and must have made at least three payments since the loan was first taken out or since the last time it was modified. You can't be in the process of declaring bankruptcy.


• Rentals are for 12 months, with the possibility of an extension.


• The home remains available for sale, subject to the terms of your lease. As a renter, you will remain responsible for maintaining the property.


• Only primary residences qualify. Landlords may qualify if their tenant has been using the home as a primary residence.


• If your mortgage is backed by the FHA, VA or other government agencies, you don't qualify, but I suspect that if this program successfully prevents foreclosures there could be changes made by other governmental agencies. Keep watch for future announcements.

If you think you might qualify for the new rent-back program, talk with your mortgage servicers. They will work with Fannie Mae to determine whether you can become part of this new rent-back offer.

Lita Epstein has written 25 books including The 250 Questions You Should Ask to Avoid Foreclosure.