In an attempt to fix America’s broken housing market Fannie Mae and Freddie Mac at the direction of The White House previously authorized short selling – transactions allowing homeowners to sell their properties for less than what’s owed on the mortgage.  Instead of lenders pursuing to recoup the difference sellers are permitted to cancel the debt.  In another gift to homeowners the cancelled debt which is usually taxable is exempted from taxable income.

The latest move from Fannie and Freddie to try to tackle the housing problem will take effect on March 1st.  That’s when homeowners may begin applying for deed-in-lieu transactions – a new weapon in the arsenal – allowing them to walk away from their properties rather than being foreclosed upon.  Any shortfall between a property’s value and the size of the mortgage will be erased.  By helping homeowners escape so-called underwater loans taxpayers will be saddled with additional funding of the Fannie and Freddie bailouts that have cost $190 billion to date.

To be eligible for a deed-in-lieu transaction homeowners must be current on their mortgage or less than 90 days late on their payments.  At least 55% of the homeowner’s monthly income must be used to support housing payments.  A hardship necessitating the move such as the death of a spouse, a new job or an illness making mortgage payments unaffordable must be documented.  The home must be clean and undamaged.  Additionally homeowners depending upon their financial situation may have to surrender up to 20% of personal assets exclusive of retirement accounts to partially meet the mortgage’s unpaid balance.

Full details of the program and its requirements may be found here.