Bank Of America Tests Converting Delinquent Homeowners Into Renters

Because there’s more money in being a landlord than there is in going through the lengthy foreclosure/auction/short sale process, Bank of America is testing a program that will let homeowners with delinquent BofA mortgages stay in their homes as renters.

The bank announced the program, dubbed “Mortgage to Lease” last night. Rather than look for volunteers or sift through piles of applicants, BofA says it will initially reach out to fewer than 1,000 customers in Arizona, Nevada and New York who meet all of the following 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.

To take part in the program, participants must transfer title for their properties to BofA in exchange for the bank forgiving any outstanding mortgage debt. They can then remain on the property for up to three years as renters. The bank says it will set rental rates “at or below the current market rental rate,” and that whatever the rent is, it will be less than what the homeowner’s monthly mortgage bill.

BofA says it will retain ownership of the properties but plans on eventually selling them to to investors.

And like any test program, if Mortgage to Lease is successful, it will expand beyond the pilot areas. The bank says it could possibly foresee making deals with real estate investors to take over more properties if they agree to keep the delinquent homeowners as tenants.

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  1. Emerson says:

    There has to be more to this. This is BOA we are talking about.

    • Blueskylaw says:

      My first thought would be that Bunk of America wants to keep the homes for another year or two until the economy is much improved, and the homes go up in value, then they will dump them on the market. While they are waiting for the market to improve, you will be saving them a lot of money that they would normally have to spend by paying them rent and essentially keeping up the home for them. Not having to go through a foreclosure or short-sale process will also save them money. Trust me, when they thought of this, they didn’t have their customers best interests in mind.

      • crispyduck13 says:

        That’s what I was thinking as well, why not hold on to it for a couple years and use the rent to pay the property taxes and maintanance.

    • vnlindstrom says:

      Yes, of course. The homeowners are giving away a number of legal protections by signing over the title, because it’s usually a hell of a lot easier to evict than it is to foreclose. They’re basically willingly foreclosing on the house early, because the homeowners forego the money already paid toward the mortgage.

  2. pecan 3.14159265 says:

    I like this idea, but I imagine there will be limitations on how low the rent can be in order for a person in foreclosure to afford it. Someone in severe financial distress still might not be able to afford the rent, even if it is lower than the mortgage. I doubt BofA will reduce the rent to $500 if the mortgage was $2,000.

    • SteveZim1017 says:

      I’m sure there is a cut off, but BOA would be saving money in most cases with little to no rent being paid. The savings of not going through the forclosure proceedings and not having to pay someone to maintain an abandoned property is worth much more than the pittance they will give these people as a lower rent.

  3. Emerson says:

    What if the renter destroys the house during the 3 years they are living there?

    • Loias supports harsher punishments against corporations says:

      Then mission accomplished.

    • CubeRat says:

      BofA’s is trying to liquidate a bad loan, this is in fact a loss of the property to the note-holder, but is allowing them to live there. BofA plans to sell these to investors, then the investor would be the landlord.

      I doubt BofA wants to be a landlord. Until the property is sold, I suspect BofA will have a property manager, who will be the contact person for the rentors. And if the rentors destroy the place, the owner (either BofA or the investor) would have all the legal rights of any landlord. It is the former homeowner that has signed away any claim to ownership of any of the land/home; they only retain ownership of their own furniture. No different than any other landlord/renter situation.

  4. Bob says:

    If BoA becomes your landlord, good luck getting them to fix things around the house like appliances or the roof or plumbing or all those other things that landlords are responsible for!

    • econobiker says:

      My first thought exactly – who pays for the repairs?

      • southpaw1971 says:

        I’m thinking they’d bundle these en masse to “management companies” for managing that sort of stuff.

        • SissyOPinion says:

          That’s exactly what Fanny Mae & Freddy Mac have done. They have property management companies look after properties and deal with renters. When the properties are available for selling, deteined by the terms of the lease, the property management company becomes the selling realtor.

      • Jawaka says:

        Fix it yourself and take it out of the money you owe them.

  5. Loias supports harsher punishments against corporations says:

    If I were an owner-turned-renter, I’d probably trash the place and then let them keep my security deposit, because I’d be pretty pissed BOA took my house.

    • Snowblind says:

      If they took a huge debt off your hands without wrecking your credit, why would you be mad?

      • Loias supports harsher punishments against corporations says:

        They took my money THEN took my house, THEN I have to be their tenant and they take my money again?

        Yeah, I can see people being very unhappy.

        Perhaps not a fair comparison, but imagine a big oil baron taking your land from you then renting it to you? Not very pleasant.

        • LabanDenter says:

          You never had ownership of the house. They took what belong to them to begin with.

        • CubeRat says:

          You signed a contract with a mortgage broker/bank etc to borrow $$ in exchange for this home; which you said you would repay with a monthly payment of ?? for 10/15/30 years. Due to whatever circumstances you are unable to honor your contract and BofA as the servicers/holder of the note has the right to take the collateral securing the loan and try to liquidate it.

          Basic contract; if you can’t meet the terms of the contract and you put up collateral, the other party gets the collateral.

        • fsnuffer says:

          You signed up for the mortgage. You did not keep up with the obligation as promised. They should be the ones pissed off but I keep forgetting that no one is ever at fault and everyone is a victim.

          • baristabrawl says:

            AMEN! How are you entitled to something you can’t pay for. At least you get to stay in the house and never say that you “lost” it in a foreclosure. Feel free to blame everyone else for your inability to pay for your house because you bright-sided your way through documents process to grab the American Dream by the balls and then flush it down the toilet that you’re probably going to steal during the repossession. Ug.

        • alana0j says:

          You sound like the folks on those totally “real” repo shows.

          “You can’t take my car!”

          “You didn’t make your payments so the car belongs to the bank.”

          “Nu uh! This is MY car and you can’t take it!”

          I’m sure any reasonable person with their car up for repo but then given the chance to lease it rather than lose it and have their credit fucked would be greatful for the opportunity. How is this any different?

        • Doubting thomas says:

          No you took their money, used it to but a house and then couldn’t pay them the money back. Not quite the same thing. They are changing your options from Lose your home, have no place to live and take a huge hit to your credit

          • shaman66 says:

            Thomas,
            What you seem to be missing here is lots of people TRIED to file mortgage modifications.
            BoA jerked them around, told them outright lies like “We can’t do a modification until you are 90 days past due”, then the homeowner waited 90 days, refiled for modification, and were foreclosed on for not paying for 90 days.

            And you are stupid enough to defend a company like this?

    • bhr says:

      They took your house, in this case, because you were significantly underwater on your loan and behind on your payments. Which means you didn’t actually have any equity in the house. This lets you out of the mortgage, helps you (ideally) reduce your debt load, and rebuild credit.

      meanwhile you, by trashing the house, will be liable under civil law for a judgment if they choose to sue, liable under criminal law if it rises to the level of vandalism and hard pressed to find another rental in the future.

    • Mrs. w/1 child says:

      How could anyone prove the condition of the house before you became a “renter”? Who says you trashed anything. Maybe you sold off all the fixtures and the toilet before you became a “renter”. Just mentioning it. *evil grin*

  6. Blueskylaw says:

    “Bank Of America Tests Converting Delinquent Homeowners Into Renters”

    So Bunk of America gets to keep their house and eat it too?

  7. Alan says:

    I have a feeling this will blow up in their faces.

    I’ll looking forward to the future post “slum lords BOA”

  8. Straspey says:

    From The NY Times:

    “Bank of America Tests Rental Program as Alternative to Foreclosure”

    March 22, 2012

    Bank of America said Thursday that it would offer a small number of customers facing foreclosure the option to remain in their homes and rent the property instead, highlighting how investors are increasingly interested in becoming landlords on troubled properties.

    Under the terms of the pilot program, which will be offered initially to about 1,000 consumers only in New York, Nevada, and Arizona, homeowners will relinquish the title to their property in exchange for bank forgiveness of their mortgage debt. They would then be able to rent the property for up to three years.

    The rent payments would be less than the monthly mortgage payment, and be set at or below market rates, according to bank officials.

    At first, Bank of America would retain ownership of the properties before selling them to outside investors. If the pilot program, known as Mortgage to Lease, is successful, the bank could expand it.

    A wide variety of institutional investors, including some large private equity firms, are examining potential deals in the beaten-down housing market. Bank of America’s move could offer up potential properties for investors who are looking for opportunities.

    For consumers, however, the window is small. Bank of America will not be seeking applicants or taking volunteers for the pilot program; instead, it will select and invite about 1,000 customers to participate. The bank has already started reaching out to potential participants.

    “There isn’t much of a question about investor interest,” said Dan Frahm, a spokesman for Bank of America. “What we’re testing for is customer interest.”

    In order to qualify, consumers must hold mortgages that are owned by Bank of America, have been delinquent for more than 60 days, still live in the home, and have exhausted other options…

    READ MORE:

    http://dealbook.nytimes.com/2012/03/22/bank-of-america-tests-rental-program-as-alternative-to-foreclosure/?src=twrhp

  9. ianmac47 says:

    Wow. Brilliant move for Bank of America. Instead of short selling these properties in a downmarket, they’ll hold the properties until values begin to rebound while still holding onto whatever money the previous owners paid.

    • bhr says:

      My guess is that they will package them off in bundles to investors/management companies. Put it this way, say the mortgages were for $225k properties are worth $200k appraised but the market is soft and a foreclosure sale or short sale would only net $175k. I bet BOA could sell a batch of properties at ~200k each to investors, promising them guaranteed lease payments (these customers will probably sign 2-3 year leases, with the potential to stay longer). I could definitely see local property management companies buying these up to vastly increase their rental properties with little capital invested.

      My guess also is that BOA will offer loans to the companies looking to buy the packaged properties.

  10. FilthyHarry says:

    I notice that BofA being the actual legal holder of the mortgage isn’t one of the requirements.

    • CubeRat says:

      Yes it is, in fact, it’s the first requirement. They are only offering this to “-Have loans owned by Bank of America”.

      So these are either loans that they never sold to an investor (ie Fannie/Freddie), or they were BofA loans sold that BofA had to repurchase, or they were loans that they acquired in full with one of the mergers.

  11. thomwithanh says:

    And only for three years?

  12. rdm says:

    We are trying for a short sale right now because we are drastically underwater and don’t want to stay in the home long term. If we could rent the home, we would in a heartbeat! We’ve done so many renovations to it.

  13. FilthyHarry says:

    I notice that BofA being the actual legal holder of the mortgage isn’t one of the requirements. I wouldn’t be surprised if this is an end run around around the fact that repo claims in some cases might show they do not have ownership and this avoids that while still getting paid.

    I wonder why they aren’t being more aggressive with the loan modification process if they really want to keep people in their homes?

  14. speaky2k says:

    When I first read this on a different site, I was wondering what a lot of people here already said… What will BoA do for up-keep? If the current owners are just renting, that means the landlord (BoA) has to do the up-keep such as when appliances break, lawn/land care, house repair, plumbing, etc. Is BoA set up to do these types of things or next winter are we going to start hearing tales of “I am renting my house from BoA & they won’t repair my heating system.”

    • bhr says:

      usually when you rent a house (compared to an apartment/townhome) there are a different set of rules. In my former life I saw plenty of people who were responsible for things like appliances, plumbing, ect. as part of their lease agreements. My guess is stuff like upkeep or damage repair will be on the customer’s dime, while end-of-life replacement type stuff will be on BOAs dime.

      What will be interesting is the major appliances like W/D and fridge, since the customers will officially own them unless they are forced to include them as part of the deal.

  15. suez says:

    Can you imagine having to rely on BOA to fix your heater or patch up that leaky roof???

    Que reports of Big Bank slumlord reports in 3…2…1…

    • tundey says:

      Then you do what any renter can do, move out. I think this is a good (potentially great) program. I would gladly take the deal if they offered it to me.

    • tbax929 says:

      I imagine they would hire property management firms to handle the maintenance issues, and probably even the rent collection.

      I know this is BOA, so everyone is naturally suspicious of it, but if they believe the housing market will turn around in a few years, I think it’s a clever solution.

    • Jawaka says:

      lol. These are people that just forfeited on mortgages of tens or hundreds of thousands of dollars and now they’re going to whine because BoA won’t fix the things that they themselves failed to maintain on their own. Where does it end?

  16. DemosCat says:

    Hmmm. The Mortgage to Lease program. MOL. Pronounced the “MOLest” program.

    So if homeowners fall behind on their mortgage, first we MOLest them, then when the economy improves, sell the house out from under them and kick out the tenants.

  17. Bent Rooney says:

    If they can not/will not pay the mortgage, what makes Bank of America think they can/will pay the rent? These guys might be better at math than Verizon, but they are sure dumb.

  18. crispyduck13 says:

    The only way it would be worth living in the situation where your landlord is a confirmed asshole that you should never, ever trust with anything – is if BOA not only forgives the remainder of the mortgage amount but also does not report it as a negative to the credit bureaus.

    If you really need to downgrade and find yourself a cheaper house this could be a good method of transition.

    To be clear I fully expect that if this actually happens on a large scale we will be inundated with horrific stories of BOA’s incompetance in 2 years.

  19. krom says:

    “going through the lengthy foreclosure/auction/short sale process”

    Well, that is, when you actually are expected to GO THROUGH THE WHOLE PROCESS. I mean, following the law, providing notice, response period, evidence, that’s all just too much work.

  20. Rocket80 says:

    Who in their right mind would pay rent to the bank when you can live 2-3 years mortgage and rent free while the bank processes your foreclosure?

    The time between stopping your mortgage payments and getting evicted is already years, may as well milk it for all you can.

  21. TinaBringMeTheAx says:

    Wont the former homeowner also owe a boatload of taxes on the forgiven debt?

  22. evilpete says:

    as a landlord wouldn’t be responsible for repair & maintenance and bringing the property up to code?

    This can be a big win for the old owners / new renters

  23. HogwartsProfessor says:

    The only advantage to the consumer that I can see is if BoA makes the rent payment less than the mortgage, then the homeowner may at least have a grace period to look for other housing and perhaps put a tiny bit of money away for that. But if there is a significant drop in the payment, even if the homeowner can cover the rent I can see BoA evicting them right away. I could be wrong, but that would be my fear.

  24. CappyCobra says:

    Rent-A-Center is starting a new chain called Center-A-Rent. CEO Mark Speese stated that “If Bank of America can do this with homes, surely we can do that with electronics.”

  25. sjgarg says:

    So I guess sometime in the future we’ll be reading Consumerist articles about how John Doe who had almost paid off his mortgage, with only a few months to go in his 20-year mortgage, had BofA convert him to this program without properly informing him, or “by accident”, and he gets screwed out of his home where he paid off like 95%+ of the mortgage all because he was late with one payment and it automatically kicked in.

  26. Mrs. w/1 child says:

    So who will be responsible for maintenance and repairs? BofA? Will BOA hire a property manager to oversee the property? What utilities will be included in the rent? Are the appliances still yours or do they now belong to BOA? What about upgraded fixtures? Can you replace those with cheap fixtures and resell the “good” ones? Why wouldn’t you just sell off everything you could and move to rental housing that would likely be less expensive than renting from a greedy bank and begin saving your money again?

    There are so many places this is going to go soooo wrong.

  27. scottd34 says:

    Nothing could ever go wrong with this program …

  28. baristabrawl says:

    How are you ENTITLED to something you can’t pay for? At least you get to stay in the house and not have to say that you “lost” it in a foreclosure. Feel free to blame everyone else for your inability to pay for your house because you “bright-sided” your way through documents process to grab the American Dream by the balls and then flush it down the toilet that you’re probably going to steal during the repossession. Ug.

    • hahatanka says:

      No I had an emergency come up and had to miss a couple of payments. BOA refused to work out a plan where I could catch up. BOA attitude is “we want you out.” I have the money to catch up. They refuse to take it or even talk to me on the phone.