About a week ago, Bank of America released details of its so-called “Mortgage to Lease” program, which as the name implies, allows homeowners to lease the homes they previously mortgaged.
So let’s take a closer look to see just what Bank of America is doing here.
First things first, this is a very limited pilot program, so don’t assume you can head down to Bank of America, fill out some paperwork, and then ditch your pesky mortgage but not your beloved house.
In fact, fewer than 1,000 customers will be “invited” to participate in the Mortgage to Lease program, meaning your chances of being selected are only slightly better than winning the Mega Millions jackpot.
Additionally, only homeowners in Arizona, Nevada, and New York are part of the pilot, so if that’s not you, you’re out of luck, at least for the moment.
Requirements for the Mortgage to Lease Program:
- Mortgage is owned by Bank of America
- Mortgage is 60 days + delinquent
- All other loan modification solutions have been exhausted or ignored
- Face high risk of foreclosure
- Have no second mortgages
- Still occupy the home
- Have enough income to make affordable rent payments
So while this looks like a lengthy list, it’s probably not all that uncommon. Well, the lack of second mortgages probably is, as most homeowners who are currently in trouble went with 100% financing. And most used second mortgages to get there.
But for those with one loan who still managed to find themselves underwater, or at least behind on mortgage payments, and couldn’t manage a short sale or deed-in-lieu of foreclosure, this program may be a winner.
That is, if you actually want to stay in the home that gave you so much heartache.
How the Mortgage to Lease Program Will Operate
Assuming you do, participants in the program will agree to transfer title of their home to Bank of America, and their outstanding principal will be forgiven. In other words, you won’t owe the bank anything for owing more than the mortgage is worth.
In exchange, you’ll have the opportunity to rent the house you currently reside in for up to three years, with rental payments set at or below the current market rental rate.
The rental payment will be less than the old mortgage payment, and the homeowner will be relieved of normal homeowner costs, such as homeowners insurance and property taxes.
Bank of America will have a property management company oversee the rental properties, and eventually the inventory of homes will be transitioned to investor ownership.
However, if all goes well, the investors can keep the tenants in the homes for as long as they see fit. And possibly even sell them back to the homeowners.
Will it Work?
Bank of America’s Mortgage to Lease program isn’t at all groundbreaking. In fact, Fannie Mae’s very similar Deed for Lease program has been around for more than two years.
Regardless, it seems like Bank of America’s new initiative is very limited in scope, and only targets customers who have made no effort to change their unfortunate situation.
If anything, it seems like a last gasp opportunity to avoid a foreclosure for BofA (and the losses that come with it), while the homeowner in question is probably just seeing how long they can hang on without making a payment (free rent).
My guess is a homeowner that hasn’t shown any interest in a loan mod or any other foreclosure alternative probably won’t be all that interested in this program, given the only upside is staying in a house they can’t afford, or aren’t willing to fight for.