Steadfast FinancesMortgage-To-Lease Program from Bank of America

Mortgage-To-Lease Program from Bank of America: Helpful, or Next Foreclosure Scam?

Filed in 20s , Banking , Economy , Real Estate 2 comments

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.

What Is The Program?

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.

Who Qualifies for the Mortgage-to-Lease Program?

You can’t get into the program unless you qualify. Here are the qualifications:

  • Live in AZ, NV or NY – BofA is testing the program in only these three states at this time
  • More than 60 days delinquent
  • Have exhausted modification solutions or have not responded to alternatives to foreclosure
  • Have no junior liens
  • Make adequate income to pay rent
  • Stuck with an underwater mortgage

What Do You Get Out of It?

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.

It’s a Bank Program That Mostly Benefits the Bank

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:

  • Easier path to foreclosure, in that you agree to the foreclosure up front. Government regulators have been making the road to foreclosure more complicated for banks. This program, if popular, would make that headache go away.
  • Quicker eviction for you, the homeowner. I’m certain that the bank would prefer that you pay the rent, but you need to understand that it’s much easier to evict you as a tenant instead of a homeowner. You only need to be a little late with rent and the bank can start the eviction process. You lose some of your legal rights when you have no ownership.
  • Your tenure as a renter will help BofA fill in that gap between principle balance and home value. Good news for BofA, as you pay for rent, you’ll be helping move the property out of underwater status.
  • Renters will start making payments again. Sure, rent is less than your mortgage, but homeowners who have stopped paying on foreclosed homes have no money coming in the door until they are sold to a new homeowner. This program keeps at least some money coming in the door.
  • You could potentially occupy the home while the bank sells it. Sure, you are guaranteed rent for up to three years, but the bank is able to sell the home to anyone during that three years. When the three years are up, you can be sent packing.

Important Downsides for Homeowners

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.

Is The Program Right for You?

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.

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Posted by CJ   @   29 March 2012 2 comments
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Mar 29, 2012
2:58 pm
#1 Kris :

Wow. I guess more options can be good, and you’ve pointed out the only benefit for the homeowner is if you were to potentially lose money anyway. Why can’t BOA come up with something this creative to help the average homeowner struggling to pay…

Mar 31, 2012
12:35 pm

@ kris – I don’t understand it myself. Why create a program that has little benefit to the struggling homeowner? I suspect that this program is not going to be popular.

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