Another program to keep distressed borrowers in their homes was announced this morning by Bank of America. "Mortgage to Lease" will start immediately as a pilot program for 1,000 preselected homeowners in three states, Arizona, Nevada, and New York, which have been particularly hard hit by foreclosures.
The program will forgive all mortgage debt and allow homeowners to remain as tenants in their homes for a period of three years after surrendering their deed to the bank. Rents will be set at a level below the homeowner's previous mortgage payment and at or below local market rents. Homeowners will be relieved of other obligations such as property taxes and homeowner insurance.
The bank has already begun outreach to customers it has determined are appropriate candidates for the pilot and will not accept applications or volunteers at this time. Those selected to participate must have loans owned by Bank of America and still be residing in the home. In addition they must meet the following criteria:
- Have exhausted modification solutions or have not responded to alternatives to foreclosure, including short sale and deed-in-lieu.
- Have high loan balances in relation to their current property value.
- Face considerable risk of ultimate foreclosure.
- Have no junior liens.
- Have adequate income to make an affordable rent payment.
"When homeowners are struggling to make payments, owe more on their mortgage than their home is worth and face certain foreclosure, one of their greatest anxieties is the transition process they face in moving from their home," noted Ron Sturzenegger, Legacy Asset Servicing executive of Bank of America. "This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support. This program may have the potential to further round out the broad set of solutions we offer our customers in need of assistance."
Bank of America will initially retain ownership of the properties, assigning their oversight to property management companies and plans to eventually sell them to investors. If the pilot program is successful, the bank may expand it to other locations in this format or it could avoid ownership by acting to facilitate the direct purchase of properties by investors who would allow the owners to stay on as tenants.
"Our priority is designing a solution that helps our customer," said Sturzenegger. "If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market."
