Fannie Mae is a government sponsored private company, with its roots in the Great Depression. Unfortunately, mere government-sponsorship was not enough to keep the company afloat during the recent financial crisis, and the U.S. government had to go all in on its bad bet and seize the company to prevent its imminent demise. While the very concept of a government-sponsored enterprise once seemed like something of a oxymoron, it is now beginning to seem like a quaint relic of the good old days, before the Government started simply seizing every shaky financial institution in sight. Now, instead of seizing homes from delinquent borrowers, Fannie Mae has announced a program where it will agree to take a Deed In Lieu (of foreclosure), and, if certain conditions can be satisified, to permit the former homeowner to remain in their former property as renters instead of owners. Fannie Mae calls it the Deed For Lease program. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free On one hand, the goal is laudable, to prevent the disruption of the lives of decent people who have been forced from their homes largely as a result of the financial crisis. To the extent that it prevents another foreclosure and distressed property from hitting the market and turning into a bad “comp” that hurts all of the neighborhood’s values, it is also a good thing. But do we really want Uncle Sam (in the guise of Fannie Mae) to be in the rental housing business, competing with private landlords? I for one, do not think this is even remotely a good idea. Who will maintain and operate these properties (effectively owned by the taxpayer)? Will they do it as efficiently as a private landlord? I sincerely doubt it. Further, won’t this just exacerbate the already-significant problem of shadow inventory, I discussed in a former blog post? Fannie Mae defenders will likely argue that Fannie Mae is not the government, but really, when it is the taxpayers’ money at risk, isn’t this just splitting hairs? On the other hand, there is a far better way to achieve most of these goals. Go ahead with the foreclosure, and just sell the property to an investor who agrees to rent it back to the former owners. This is truly a win-win – no shadow inventory problem, no long term government interference with the rental market, and, very likely an efficient way to manage formerly distressed properties using the private market. Sound far-fetched? It is hardly science fiction — first of all, it is already happening organically, i.e., even without requiring the investor’s promise to do a rent-back. As reported by the L.A. Times, “Joseph Lenihan, an investor from Palos Verdes Estates, rents two foreclosed homes to their previous owners. Lenihan bought one of the homes this year for $160,000 and rents it to the former owner for $1,500 a month. The rent is more than Lenihan’s mortgage and less than half the previous mortgage payment on the home, which was bought for $450,000 in 2005.” Second, the same article points out that the Obama administration is currently considering just such a program. Fannie Mae’s current position is frighteningly close to the nightmare imagined by Ronald Reagan — the bureaucrat who appears and says “we’re from the Government, and we’re here to help.” I think we’d be better off learning the lessons of history and leaving this one to the private sector. There appears nothing in the latest Fannie Mae plan that could not be better accomplished by an incentive program for foreclosure investors to rent back to the former owners.