Bank of America is hoping to start a new program that would allow people who face foreclosure to rent their homes for an extended period of time.
The new foreclosure-avoidance plan is called “mortgage-to-lease,” and would also allow the homeowners to have their mortgage debt wiped away.
Bank of America will begin sending proposals at the end of the month to around 1,000 customers in New York, Arizona, and Nevada. If the new program proves popular, expect to see it expand to other states.
Homeowners in the initial pilot tests had all been previously offered a various amount of alternatives to foreclosure, including loan modifications and short sales, but all had either not qualified or not responded to the proposals. These people now have no options except foreclosure. But with the mortgage-to-lease plan, a borrower gives back their home to the bank. However, they receive multiyear leases at or around the going market rent for that type of home, but only if they have monthly income to pay for it. When the lease expires though, there is no direct guarantee that the former homeowners will be able to repurchase their home.
Bank of America currently has no estimates as to how many will take the new offer, but they surely hope many do. The plan particularly benefits the bank, as they’ll most likely obtain higher returns from this type of investment then from trying to sell a foreclosure home.
While Bank of America has not discussed details of the plan with advocate groups for foreclosure-prevention and homeownership, leaders of most of the groups have viewed the concept positively.