According to the California Association of Realtors, despite recent indicators that the housing market is improving, a new report shows that one in four mortgage borrowers are underwater, meaning they owe more on their mortgage than their home currently is worth. According to First American CoreLogic, nearly 10.7 million households had negative equity in their homes in the third quarter, accounting for about 23 percent of all U.S. homeowners. Most homeowners, however, still have equity, and nearly 24 million owner-occupied homes do not have a mortgage, according to the U.S. Census Bureau. A study by credit-scoring company Experian shows that approximately 588,000 borrowers strategically defaulted on their mortgages last year, even though they could afford to pay—more than double the number in 2007. Homeowners with negative equity are more likely to strategically default if they live in a state where the bank cannot pursue their assets in court, according to a study by the Federal Reserve Bank of Richmond. California is an example of a state with anti-deficiency laws protecting homeowners from personal liability under certain circumstances. “Borrowers who are less than 20 percent underwater are likely to maintain their mortgage if their loan is modified and the payments reduced,” said an official with Citigroup’s mortgage unit. “Beyond 120 percent, the most effective modification is a complete loan restructuring, including a principal reduction.”

According to the California Association of Realtors, a program by the U.S. Treasury Dept. aims to provide $29 billion to state and local housing finance agencies over the next year. Housing finance agencies provide loans to low- and moderate-income borrowers and have faced challenges in recent months as investors have been reluctant to purchase their debt. Under the program, the Treasury Dept., along with Fannie Mae and Freddie Mac, will buy bonds used by housing finance agencies to fund mortgages. California’s Housing Finance Agency (CalHFA) received the largest allocation of any housing finance agency–$1.6 billion of the $1.7 billion it sought. The Treasury hopes the program will help stabilize the housing sector, while providing another avenue for borrowers to secure affordable loans. According to the National Council of State Housing Agencies, local housing agencies generally assist 100,000 borrowers each year.

According to the California Association of Realtors, Fannie Mae last week announced a new Deed for Lease™ program. The new program allows borrowers to voluntarily transfer their property back to the lender and then lease back the house at market rate. The lease period is for up to 12 months, with month-to-month contract extensions after that period. The program is designed for borrowers who do not qualify for or have not been able to obtain other loan-workout solutions, such as loan modifications. To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance also may be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31 percent of their gross income. Homeowners thinking of participating in the Deed for Lease™ program should visit Fannie Mae’s loan lookup Web site at http://loanlookup.fanniemae.com/loanlookup/ to see whether their loan is owned or guaranteed by Fannie. Mortgages backed by the Federal Housing Administration and other government agencies are not eligible for the Deed for Lease ™ program. To read the full story, please click here: http://blogs.wsj.com/developments/2009/11/06/qa-how-to-rent-your-home-from-