Bank of America announced last week that it will begin testing a new mortgage-to-lease program in Nevada, New York and Arizona. Under this program borrowers will deed back their homes to Bank of America and in exchange will get a multi-year lease with monthly rent payments at or slightly below the going market rate for similar units in their area. If reaction from the 1,000 customers who will be offered the program is positive then it could be expanded to other states.
Offers to be a part of the mortgage-to-lease program will only be sent to Bank of America customers who have already previously been offered a variety of other possible alternatives to foreclosure. Those other alternatives include loan modification, forbearance on payments, short sales, and deeds in lieu of foreclosure. Customers chosen for this program have either not qualified for other programs or have not responded to the bank’s proposals.
Bank of America is calling this program an “experiment” and readily admits it has no idea how many homeowners will take them up on their offer. What is clear is the bank’s goal to reduce costs associated with taking homes back from troubled borrowers. In this case there are two potential benefits to the bank. The first is that having a homeowner give the home back, “deed in lieu of foreclosure,” is much a less expensive process than foreclosure. The second potential benefit is the bank expects mortgage-to-lease homes with existing, income qualified tenants to be much more attractive than a vacant foreclosed unit and therefore easier to sell at a higher price to investors.
The bank seems to be the clear winner if this program is a success. The real question to be answered is how many homeowners will be willing to rent a home that they once owned, from a bank that was threatening to take the home unless it was just given back? Another factor that could be less than motivating for these underwater borrowers is that if they just do nothing and let the bank proceed with foreclosure they could potentially live in the house, rent free, for a year or more.