Bank of America’s New Mortgage to Lease Program
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UPDATED: Mar 26, 2012
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Bank of America (BofA) announced a new plan to help underwater homeowners, but they’re only releasing it to 1,000 of the nation’s struggling consumers. BofA is not accepting applications for this test run, as the bank itself will do the selecting of mortgage loan holders from Nevada, Arizona and New York who are on the verge of foreclosure.
This new test program, called Mortgage to Lease, is granting mortgage debt forgiveness in exchange for titles to an underwater home. BofA will then allow those participating in the program to rent their home back from BofA but at a rate lower than their previous monthly payment.
BofA will select the eligible homeowners for their Mortgage to Lease program, and is considering only those who they believe are in the direst of circumstances. To qualify, underwater home loan borrowers must:
- Be delinquent for 60 days
- Have attempted all other modification solutions
- Live in their underwater home
- Have a high loan-to-value (LTV) ratio
- Make an adequate enough income to pay for rent
- Have no junior liens
- Be at a considerable risk for foreclosure
- Have a home loan owned by BofA
When asked why this program is only being made available to 1,000 homeowners, Stan Humphries, an economist with Zillow, predicts that such a program must be made in installments if the nation is expected to weather any sort of debt forgiveness.
Humphries estimates that between 11 million and 14 million Americans currently hold underwater home loans. If all of those mortgage loan borrowers sought debt forgiveness, banks across the nation would be forced to write off $750 billion.
“Our priority is designing a solution that helps our customers,” said Ron Sturzeneggar, Legacy Asset Servicing executive of BofA in a press release. “If it evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the community and curtail neighborhood blight by keeping a portion of distressed properties off the market.”
While Humphries told the Daily Ticker that the Mortgage to Lease program is good since rental supply is dwindling and soon-to-be foreclosed on homeowners need to live somewhere, he also revealed that “there’s no silver bullet policy that really can fix this problem in a single stroke.”