Bank of America's pilot program will offer about 1,000 consumers
in three states the opportunity to give up the titles to their
properties in exchange for bank forgiveness of their mortgage debts.
Bank of America plans to offer a small number of customers facing
foreclosure the option of remaining in their
homes and renting the property instead. The program highlights
investors' increasing interest in becoming landlords for troubled
properties.
Under the terms of the pilot program, which will be offered
initially to about 1,000 consumers in New York, Nevada and Arizona,
homeowners will give up the titles to their properties in exchange
for bank forgiveness of mortgage debts. They would then be able to
rent the properties for as long as three years.
The rent payments would be less than the monthly mortgage
payments and be set at or below market rates, according to bank
officials.
At first, Bank of America would retain ownership of the
properties. Later, it would sell them to outside investors. If the
pilot program, known as Mortgage to Lease, is successful, the bank
could expand it.
A wide variety of institutional investors, including some large
private equity firms, are evaluating potential deals in the beaten-
down housing market. Bank of America's approach could offer
properties for investors who are looking for opportunities.
For consumers, however, the window is small. Bank of America will
not be seeking applicants or taking volunteers for the pilot
program; instead, it will select and invite customers to
participate. The bank has already started making contact with
potential participants.
"There isn't much of a question about investor interest," said
Dan Frahm, a spokesman for Bank of America. "What we're testing for
is customer interest."
To qualify, a consumer must hold a mortgage owned by Bank of
America, have been delinquent for more than 60 days, still live in
the home and have exhausted other options. Homeowners whose
mortgages are serviced by Bank of America but owned by other
investors, like Fannie Mae or Freddie Mac, would not be eligible for
the pilot program.
"When homeowners are struggling to make payments, owe more on
their mortgage than their home is worth and face certain
foreclosure, one of their greatest anxieties is the transition
process they face in moving from their home," Ron D. Sturzenegger,
Legacy Asset Servicing executive at Bank of America, said in a
statement.
He continued: "This pilot will help determine whether conversion
from homeownership to rental is something our customers, the
community and investors will support. This program may have the
potential to further round out the broad set of solutions we offer
our customers in need of assistance."
"Our priority is designing a solution that helps our customer,"
Mr. Sturzenegger added. "If this evolves from a pilot into a more
broadly based program, we also see potential benefits from helping
to stabilize housing prices in the surrounding community and curtail
neighborhood blight by keeping a portion of distressed properties
off the market."
