Fannie Mae program to turn homeowners into renters

WASHINGTON (Reuters) - Major U.S. mortgage finance source Fannie Mae FNM.N FNM.P announced on Thursday a program aimed at turning struggling homeowners into renters in their own homes.

The last-ditch program, to be known as Deed for Lease, is designed for borrowers who are facing foreclosure and have been unable to get a modification or refinance on their existing loan.

Borrowers would transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

"This new 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," said Jay Ryan, vice president at Fannie Mae.

Prospective renters would also have to show that the rent would be at most 31 percent of their monthly gross income.

Dean Baker, co-director of the Center of Economic and Policy Research, a Washington think tank, said the program would be especially useful in areas where the cost of owning is significantly higher than the cost to rent.

"The Deed for Lease Program will keep the homes occupied rather than being an eyesore and a potential safety hazard," Baker said.

(Reporting by Corbett B. Daly; Editing by James Dalgleish)