The news is abuzz over Bank of America’s latest program, mortgage-to-lease, to help homeowners abate impending foreclosure. Unfortunately, when you hear anything with Bank of America’s name on it, you’ll be faced with a lot of dishonest reporting from those with political agenda from both the bandwagon and peanut gallery of detractors. If you want an impartial opinion of the program, you’ve come to the right place.
Instead of loan modifications or foreclosure, Bank of America is proposing the mortgage-to-lease program. It offers struggling mortgagees the opportunity to convert their mortgages into lease agreements. Essentially, you give up ownership of the house and become a renter. However, your payments will be reduced dramatically and you can lease for up to three years.
You can’t get into the program unless you qualify. Here are the qualifications:
It’s important to understand that this program is a new option for you and more options are usually a good thing. However, options also make things more complicated, so you really want to understand what your choices are. While I have some serious reservations about the program, I cannot disagree that it might be a good option for some people, given the right circumstances.
One piece of BofA marketing that needs to be exposed is that this is not a program to keep you out of foreclosure. The program has you turn ownership of your home to the bank. So in reality, this accelerates the foreclosure process for the bank. What this program will do is stall eviction for up to three years.
According to the BofA news release, the mortgage is canceled as a term of the program. This means that if you were looking at a short sale, this program might keep you from continuing to pay your mortgage principle after you’ve said goodbye to the home.
Yes, there are some potential benefits for current homeowners who are underwater on their mortgage. However, this is really a program meant to provide huge benefits to the bank. Just take a look at these benefits that BofA gets out of the deal:
For the most part, I’ve already covered many of these in the last section, but I feel that it is important to reiterate some of the downsides to this program.
First of all, it isn’t an alternative to foreclosure or even eviction for that matter. You turn over your rights as homeowner much quicker under this program than if you went through foreclosure. It allows you to delay eviction for up to three years. It’s probably best if you count on being evicted by year three.
You lose some of your power when it comes to eviction. Laws favor property owners, which is why it takes BofA effort to evict mortgagees. Once you are a tenant, the advantage of law switches hands and BofA will have an easier time evicting you. Don’t do this program if you have even the slightest doubt you can make rent payments on time.
In my opinion, this program is best for those that are going to still owe the bank money after foreclosure or short-sale. The program wipes the slate clean, which means that there is no recourse to the mortgagee once you become a tenant. It could be a way to wipe the slate clean.
However, I do have to question whether delaying eviction is really that big of a benefit. As I discussed on Smart Family Finance last week, when you face foreclosure you risk losing your down-payment and closing costs. This program doesn’t abate those loses, in fact, they make them more certain.
If you ask me, eviction is eviction whether it’s three months from now in foreclosure or three years from now. Your losses will be the same. However, it’s your money. If you think delaying the inevitable will benefit you, this program might be a good fit for you.
Shaun is the author of the blog Smart Family Finance, a site dedicated to exploring the challenges of family finance; from starting a marriage to starting a family, from teaching your children about finance to helping them pick a college, from single income to multiple income. The intricate world of family finance unlocked, one post at a time.