Bank of America Tests Foreclosure Option

Bank of America Tests Foreclosure Option
  • Opening Intro -

    Homeowners in three states that have mortgages with Bank of America now have a new option to foreclosure available to them.

    The Wall Street Journal reports that this bank has launched a pilot program where homeowners sign over the deeds to their homes and allows them to rent back their homes at market rate.

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Helping consumers through the mortgage crisis.

The bank’s “mortgage to lease” option is being made available to more than 1,000 homeowners in New York, Arizona and Nevada, potentially giving affected homeowners the chance to avoid foreclosure and the dark spot on their credit record that comes with it.

Presevering Home Occupancy

The program, of course, does nothing to preserve home ownership. It does preserve home occupancy, something many homeowners want even if they no longer own these homes. The Bank of America initiative helps homeowners who are unable to keep their residences who might not qualify for a mortgage modification. It also provides an alternative to short selling the home and leaving. Many banks disallow short sell homes to be rented out to the former homeowner, a provision that requires them to find other accommodations.

Bank of America can benefit from this program as it avoids eviction costs that include taking the home back, fixing it up and putting it on the market to be resold. The WSJ indicates that if the program doesn’t work as intended, the bank could allow investors to buy up affected properties with the provision that they be kept as rental properties.

Credit Record Hit

Though now available, consumers are not allowed to apply to the Bank of America program. Instead, the bank sends out letters directly to homeowners at its discretion, offering to accept a “deed-in-lieu of foreclosure” in exchange for avoiding bankruptcy. Affected consumers already have some black marks on their credit records, but the deed would help consumers avoid the stigma of foreclosure and the seven years that event stays on their consumer credit record according to the Fair Isaac Corporation.

Although the mortgage to lease option may be appealing to some, the bank’s offer is contingent upon the consumer qualifying for the program. That means demonstrating the ability to make lease payments for the one-year lease with options to renew the lease for each of the following two years. The bank will set rents at or below market rates, perhaps saving consumers hundreds of dollars per month with the reduced payments.

Stabilizing Home Values

Turning distressed properties into rental units can also stabilize neighborhoods. When a neighborhood has a sizeable number of homes in foreclosure, home values across the board, penalizing people who have kept up with their mortgage payments. If the Bank of America program is well received, it could be expanded with other banks joining in. That would help stabilize home prices, perhaps advancing a recovery that has been a long time coming.

See AlsoSayLending: Manage Your Refi Mortgage Loan

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Categories: Home Financing