Bank of America’s “Mortgage to Lease” Program Bad For Homeowners?

Last week Bank of America announced they are launching a pilot program, “Mortgage to Lease,” that will allow delinquent borrowers to rent instead in lieu of foreclosure.  The program will initially be limited to 1,000 homeowners in Arizona, Nevada and New York; but could expand if the program is successful.

Those selected for this initial pilot program will be more than 60 days delinquent on their home loans, have high loan balances in relation to their current property value, have no other liens on their property, and have an income level high enough to afford the rent.

The homeowner 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.

But is this good news for the homeowner?  Let’s take a look at a few of the facts:

1. One of the big questions for this program is how and when will the rental prices be determined? If the homeowner short sells their property, they may be in a better position, if they can find another rental property for less money.  Delinquent homeowners should get all of the facts before signing up for any mortgage to lease program.
2. Will the bank push the rental program instead of alternatives such as a mortgage modification?  There’s no denying that a mortgage to lease program could be a good deal for the bank since they would continue to receive income while effectively foreclosing on the property without the hassle of an actual foreclosure.  With this type of benefit, isn’t it feasible that the bank might prefer a lease to a modification?  Homeowners will need to determine if a modification would be better before agreeing to lease their own home.
3. Renters have fewer protections.  A homeowner facing financial trouble has more options than rents. Homeowners can file bankruptcy, short sell the property, seek a modification or even refinance to lower their monthly payment. Renters don’t have this type of flexibility.  Homeowners considering a mortgage to lease program should realize that they are giving up some leverage if they become renters.

If you have comments or questions please feel free to leave them! 🙂