Friday, March 23, 2012

Renting Out Foreclosed Homes Is The New Hot Trend, Bank of America's "Mortgage to Lease" Program

Courtesy of Richard Elzey - Flickr
Bank of America released some interesting news for homeowners facing foreclosure. It said 1,000 customers will be "invited to participate" in their new "Mortgage to Lease" program, which will allow homeowners to avoid foreclosure by converting their home into a rental. Renting out foreclosed homes is the hot trend these days. From Bank of America (full press release below):

"Pilot participants will transfer title to their properties to the bank and have their outstanding mortgage debt forgiven. In exchange, they may lease their home for up to three years at or below the current market rental rate. The rental payment will be less than the existing mortgage payment, and the customer will be relieved from certain other homeowner financial obligations, including property taxes and hazard insurance.

Initially, Bank of America will retain ownership of the properties, working with property management companies to oversee the rental properties. Properties in the pilot program will be transitioned to investor ownership. If the Mortgage to Lease program proves viable, it may lead to a broader program, potentially involving selected real estate investors who would purchase properties that meet their predetermined specifications and keep the previous homeowners in place as tenants.

Insight: The Wall Street gold rush in foreclosed homes (Reuters):

"The Federal Housing Finance Agency, which regulates Fannie and Freddie Mac, expects it will receive a considerable number of bids in April for the initial round of 2,500 Fannie-owned homes in cities like Atlanta, Chicago, Los Angeles and Phoenix."

Private Equity Readying a Run on Foreclosures (CNBC)

Bank of America Pilot Program: There’s No ‘Silver Bullet Policy’ to Fix Housing (Daily Ticker video featuring Zillow economist)

Bulk REO to Rent Scheme a Clear NEGATIVE for US House Prices… (Mark Hanson)

I wonder how all of this affects home prices going forward. Bank of America Merrill Lynch thinks they "are bottoming now." Interesting.

"Bank of America Outlines Limited Pilot Test of Mortgage to LeaseTM Program

Preselected Customers May Turn Over Deed, Eliminate Mortgage Obligation, but Remain in Their Homes as Renters

CALABASAS, Calif. – Beginning this week in targeted hard-hit markets, Bank of America will offer a limited number of mortgage customers who are facing foreclosure an opportunity to remain in their homes, but transition to tenant status, through a pilot program called “Mortgage to Lease.”

“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.”

To maintain test controls, the Mortgage to Lease pilot will be conducted strictly on a solicitation basis; there will not be any opportunity for customers to volunteer or apply for consideration. Fewer than 1,000 customers will be invited to participate in the first phase of the pilot. Initial outreach has begun to preselected customers in test markets in Arizona, Nevada and New York, three states hit hard in the housing downturn. The pilot population will include customers who meet all of these requirements:

· Have loans owned by Bank of America.
· Are delinquent for more than 60 days.
· 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.
· Are still occupying the home.
· Have adequate income to make an affordable rent payment.

Pilot participants will transfer title to their properties to the bank and have their outstanding mortgage debt forgiven. In exchange, they may lease their home for up to three years at or below the current market rental rate. The rental payment will be less than the existing mortgage payment, and the customer will be relieved from certain other homeowner financial obligations, including property taxes and hazard insurance.

Initially, Bank of America will retain ownership of the properties, working with property management companies to oversee the rental properties. Properties in the pilot program will be transitioned to investor ownership. If the Mortgage to Lease program proves viable, it may lead to a broader program, potentially involving selected real estate investors who would purchase properties that meet their predetermined specifications and keep the previous homeowners in place 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.”

Source: Bank of America Newsroom

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