BofA Tests an Option to Foreclosure

The following article is brought to you by Nick Timiraos of The Wall Street Journal.

Lender Lets Owners Stay in Homes, Rent From the Bank

Bank of America Corp. is launching a pilot program that will allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.

While the initial scope of the “Mortgage to Lease” program is small—the bank began sending letters Thursday offering leases to 1,000 homeowners in Arizona, Nevada and New York—it represents a big change in the way banks deal with borrowers who can’t afford their mortgages.

Until now, banks have focused the bulk of their borrower outreach on modifying mortgages, usually by reducing the monthly payments. When that doesn’t work, most foreclosure alternatives require homeowners to leave their house, typically through a short sale, in which the bank approves the sale for less than the amount owed. Banks often insert clauses forbidding the new owner from renting the property back to the former owner.

The new approach is unlikely to be expanded unless banks conclude that avoiding eviction reduces costs associated with taking back, maintaining and reselling properties. If a significant number of borrowers are willing and able to rent the homes, Bank of America could ultimately sell the properties to investors that agree to keep them as rentals.(CHASEHOMEFINANCESUX RESPONSE: This Is What The Big Criminal Banks Have Been Wanting To Do All Along. They Don’t Want To Do The Right Thing; Make Up For Their Inequities, And Give Homeowners A Fair Deal, Instead They Want To Steal The Home From The Low Income To Middle Class Home Owner, Give It To An Investor, And Make The Home Owner Rent. Giving The Homeowner No Hopes Of Ever Owning A Home Or Achieving Any Form Of THE AMERICAN DREAM, And Enslaving Them To Rent!)

Already, in a growing number of housing markets, investors are buying foreclosures and converting them into rentals, often filling them with families that have gone through foreclosure.

Executives last year began to ask themselves “isn’t there a way to sort of combine that whole process and keep the borrower in the property? It’s just better for the market,” said Ron Sturzenegger, the Bank of America executive who last summer was put in charge of the unit that handles troubled mortgages. .(CHASEHOMEFINANCESUX RESPONSE: Yes Ron Sturzenegger, It Would Save Money For The Banks And The MARKET To Make The Families Rent The Homes That Were Stolen From Them. Then There Is No Lag Time Where The Banks Would Have To Pay For Anything, Brilliant. Isn’t It Wonderful That Executives Of Big Banks Concerns With Keeping Families In Homes Is Not Based On What Is Better For The Families, But What Is Better For The MARKET. Still, Preying On Families Desires To Keep There Homes . . . These Are Sad Days In America.)

Bank of America became the nation’s largest mortgage originator after its 2008 purchase of Countrywide Financial Corp., but over the past year it has retreated from the mortgage market. The initial pilot is limited to loans that Bank of America holds on its books. Homeowners can’t apply for the program—only those who receive letters from the bank can participate.

Borrowers would agree to a what is known as a “deed-in-lieu” of foreclosure, where they essentially sign over ownership of the property to the lender. This is less costly to the bank and also does less damagdit than a foreclosure.

In exchange, former owners would be offered one-year leases with options to renew the leases in each of the following two years at rents that the bank determines are at or below the current market price. Borrowers would have to demonstrate an ability to pay the market rent.

For example, based on a sampling of home values and rental rates in Phoenix recently, a consumer with a $250,000 mortgage and monthly payments of $1,600 could swap the house for a lease, renting the home for $900, depending on the condition of the property and the neighborhood.(CHASEHOMEFINANCESUX RESPONSE: You Can Get The SAME DEAL With The 2% HAMP 2.0 Modification, And Still Own Your Home! Click The Tab At The Top Of My Home Page, On Qualifying For A 2% Modification, To Learn More.)

Consumer advocates and some investors have long called for less disruptive alternatives to foreclosures, given the limits of loan-modification programs. “You still have a lot of people that are facing foreclosures, and this is a way to keep people in their homes that is obviously much better,” says Dean Baker, co-director of the Center for Economic Policy and Research.

Foreclosures, particularly if properties are vacant, can drag down housing values in a neighborhood.

Borrowers selected for the program must be at least two months past due on their mortgage and face considerable risk of foreclosure. Bank of America is reaching out to borrowers who have exhausted other alternatives to foreclosure or who haven’t responded to earlier solicitations. Homeowners with second mortgages or other liens won’t be selected.

Mr. Sturzenegger said the success of the current pilot would determine whether Bank of America expands the effort. “We’re optimistic but realistic. If we get a great takeup rate and the process works, we’ll roll it out,” he said.

The program is the latest example of how banks are experimenting with ways to deal with a large overhang of foreclosed properties. Some lenders have begun offering incentive payments of up to $30,000 to borrowers who agree to short sales.

Fannie Mae rolled out a “deed-for-lease” program in late 2009 but it hasn’t been widely used. Some industry analysts say that banks haven’t aggressively marketed the initiative.

Already, investors have approached Mr. Sturzenegger about purchasing pools of leased properties from Bank of America. One of those investors is Laurie Hawkes, president of American Residential Properties, a Scottsdale, Ariz.-based firm that has bought nearly 800 homes in the Phoenix area as rentals. If homes are realistically priced, Ms. Hawkes says her firm would “definitely” be interested in buying them.(CHASEHOMEFINANCESUX RESPONSE: Hey, Why Not Give A Realistic Price To The Current Homeowner???)

Foreclosures have slowed sharply in some states amid heavy scrutiny of allegedly forged paperwork used by processing firms. Banks completed 860,000 foreclosures last year, down from 1.1 million in 2010, according to CoreLogic Inc.

“One of the outcomes of the ‘robo-signing’ scandal is that it is more difficult to foreclose,” said Mr. Baker. “It’s more worthwhile for banks to pursue alternatives.”

(CHASEOMEFINANCESUX RESPONSE: Do Not Let These Big Bank Criminals Get Away With This Criminal Behavior. Now That They Are Forced To Do What Is Right And Return Funds For Illegal Foreclosure & Fees, They Want To Convince The Homeowner To Rent. IF Homeowners Sign These Rental Agreement They Will Potentially Nullify Any Possibility Of Relief From Their Big Bank’s Abuses! GET A LAWYER!)

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