Bank of America is making a move that many lenders would scoff at but that homeowners are grateful for. In a pilot program, Bank of America is renting homes back to homeowners who defaulted on their mortgage.
Bank of America’s program is different from many loan modification programs in that its “Mortgage to Lease” program allows homeowners to rent their home to prevent foreclosure.
The homeowner will be required to sign over ownership of the home to Bank of America. However, they will be allowed to stay in their home while paying rent to the bank. The rent will be less than the participants' current mortgage payments and customers will not have to pay property taxes or homeowners insurance.
Right now, this program is being offered to 1,000 homeowners in New York, Arizona, and Nevada.
To be eligible for the Mortgage to Lease program, homeowners must:
- Verify their ability to pay rent, which will be set at or below current market;
- Be two months or more behind on their mortgage payment; and
- Owe more on their mortgages than what the home is worth.
Qualified homeowners in the pilot program will be given a one-year lease to rent their home. After the first year, two-year renewal options will be available.
The Mortgage to Lease program is voluntary, making it less costly to the bank than the foreclosure process and providing the bank with the ability to generate cash flow through renting the property.
Depending on the success of the pilot program, other lenders may see incentive to follow suit and offer a rental option over a foreclosure. If Bank of America’s program isn’t successful, other lenders will likely continue to offer loan modifications, principal reductions, and short sales in order to avoid foreclosure.