It appears that Bank of America is expanding their special brand of incompetence from lending to landlord duties. CNBC is reporting that Bank of America has launched a pilot program that will allow a limited number of borrowers who are behind on their mortgages to become renters. This “Mortgage to Lease” program is targeting owners who are facing foreclosure in an effort to help keep them in their home. The program, at this point, is by “invitation only” and is being tested in Nevada, Arizona, and New York.
The report states that homeowners would transfer title back to the back and, in return, their outstanding mortgage debt would be forgiven. Property management would be outsourced to firms specializing in that area.
My reaction? This is a bigger joke than the “$25 billion” mass settlement.
Here’s my biggest problem with this program. Say a homeowner transfers title back to Bank of America and starts renting. We’ll give BoA a huge benefit of the doubt, for now, that they can execute such a program in its initial stages. What assurances does a homeowner have that they will be able to stay in their home for an extended period of time? Maybe they sign a 1-year lease. But what is to stop BoA from kicking them out after that lease expires?
The media is preaching how the housing market is supposedly improving. If that’s the case, what confidence could a homeowner possibly have that BoA wouldn’t want to sell that house as soon as market conditions improve enough to make financial sense? Does Bank of America really expect us to believe that it’s willing to play landlord for the next 10, 20, or 30 years on a house? Or even less likely, are we really to believe that BoA is going to keep thousands and thousands of REOs on its books for decades?
To me, this looks like an effort on Bank of America’s part to get around the problems they are having foreclosing on homes. Just think about it. Under Bank of America’s Mortgage-to-Lease plan, BoA voluntarily gets title to a piece of property in exchange for, let’s say, a 1-year lease. At the end of that year, BoA simply refuses to renew the lease and–PRESTO!–they essentially get to foreclose without having to even go through the foreclosure process. In the interim, they get rent payments from a family who thinks they’ve saved their home.
If Bank of America really wanted to help homeowners keep their homes, they would get serious about the modification process and genuinely work with homeowners on manageable financial arrangements. In my experience, most homeowners working with Bank of America on modifications simply get passed around from call center to call center,while constantly being told they need to submit additional paperwork. BoA should enhance their modification program to where homeowners actually are able to work through the system.
I understand the volume of loans that BoA deals with is huge, and they have to manage it somehow. However, it takes a lot less time to spend 30 minutes on the phone with a homeowner once to get things right than to take twelve 8-minute callbacks because BoA says something wasn’t documented correctly. Modifications or loan workouts create true win-win situations: homeowners get to stay in their homes, and the bank receives monthly mortgage payments. This is the goal that needs to be achieved. In my opinion, Bank of America’s Mortgage-to-Lease program doesn’t do that–it simply gives this bank a backdoor way to foreclose.