The world has not turned completely upside down, but, believe me, it is leaning precariously. Remember all those programs that were designed to turn renters into homeowners? Now we have a program to turn homeowners into renters! I refer, of course, to the Deed For Lease program rolled out by Fannie Mae on November 5, 2009.

Don't get me wrong. I am convinced that the program is well-intentioned. In the official announcement (#09-33) Fannie Mae described, “…the Deed-for-Lease Program (D4L) [isn't that cute?], a program designed to minimize family displacement, deterioration of neighborhoods caused by vandalism and theft to vacant homes, and the effect these have on families, communities and home price stabilization.” Surely these are worthy goals. They are to be brought about as follows: “D4L allows qualifying borrowers of properties transferred through deed-in-lieu of foreclosure (DIL) to remain in their home and community by executing a lease of up to 12 months in conjunction with a DIL. Investment properties that are tenant-occupied may also be considered as long as the borrower is cooperative in providing information from the tenant to facilitate the D4L.”

Over the past months there have been so many well-intentioned programs – TARP, cash-for-clunkers, the AIG bailout, HAMP, etc. – that it is almost dizzying. One way to keep from getting too dizzy is to look at a program's details and to ask, “Is this really likely to work?”

Some months ago we expressed a restrained skepticism regarding HAMP (Home Affordable Mortgage Program) and, to date, that attitude seems warranted. It may also be so with respect to D4L.

As with other programs – and we certainly should not overlook this fact – the question “Will it work?” is liable to get different answers in different locations and with different circumstances. In my market area, for example, it would appear that D4L is not going to be very helpful. But, we acknowledge that this is a pretty pricey area, and results may differ for others.

Let me give an example, reflective of realities in this market area.

Suppose that back in the day I, or I and my spouse together, earned about $150,000 per year. Today, for whatever reasons, that figure has dropped to $75,000. (Obviously, these are hypothetical figures. We are in real estate, after all.) With that income, under the D4L program, we could qualify for a rental rate of $1,937 per month (31% of gross income is the test).

Now, if we are in such straits, why didn't we get a loan modification? Apparently, we didn't qualify. Why not? Because – as with the loan mod programs – we couldn't pay more than 31% of our income, $1,937.

While there are no universal formulas for loan modifications, it is not uncommon to hear that payments have been reduced by ½. If this were true for our situation, then – because we couldn't qualify for $1,937 – we can assume that our existing mortgage payment was at least $3,875 (twice the amount we could afford).

Now, hang on here. There are further calculations to be made. They aren't hard, just tedious. And they provide a framework for calculating in other markets.

If our mortgage payment had been about $3,875, then, if we had a 30 year mortgage at 6.5%, the principal amount would have been about $610,000. Assuming it was 80% of value when originated, the home would have been worth about $762,500. Today, with a 30% decline from the peak, it would be worth $533,750 – well under the mortgage amount.

Now, here's the kicker. In 2006, a $750,000 home would, on average, (remember: this is my market area) have been 3 bedrooms, 2 ½ baths, about 1,700 square feet.

But, if that is the size of the home I am now living in, the typical rental price would be about $2,330. In other words, the rental rate will be about 20% higher than 31% of my monthly income; and I won't qualify for the D4L program.

Calculations in other market areas very well may yield different results. I would welcome hearing about them. But, here, it seems unlikely that D4L is going to be much help.

Published: December 15, 2009

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .