A Nation of Renters?

Bank of America rolled out a new Mortgage to Lease program last week to mixed reviews.

The program has numerous stipulations and is only being offered to a test market of 1,000 homeowners in Nevada, Arizona, and New York.

In order to qualify, the homeowner must be at least 60 days delinquent on their mortgage payments and categorized as a high foreclosure risk. They cannot have a second lien on the house and the home loan must be through Bank of America. They must have also exhausted all other refinancing options — that is, they must have applied to Bank of America for a loan modification and been denied.

The program relieves the homeowner of mortgage debt in exchange for the deed to their home. They can then remain in their home as a tenant and make rental payments set by B of A at a “competitive market rate” Ron Sturzenegger, Legacy Asset Servicing Executive for Bank of America told CNBC in a March 23rd interview.

For homeowners who cannot make payments but want to keep their home, this program may be a viable option.

Many questions have been raised by skeptics, the primary one being whether or not B of A plans on getting its hands dirty on the “property management” side of things.

“Who takes the call when the former owner, now renter, calls and says the toilet’s broken?” asked CNBC’s Carl Quintinilla. Sturzenegger alluded to contracting out for these types of repairs and property problems.

“We don’t want to be in the landlord business longterm… If we get substantial take up on [the program] we will be in the process of selling those homes. Instead of an empty REO, which a lot of investors are buying right now, we’ll be selling them a home with a borrower in place, with current cash flow in place.”

Because of the high number of foreclosures in the past few years, banks have found themselves with nearly unmanageable amounts of property on their books. By making REOs look more attractive to investors by attaching a tenant, they could potentially sell off this inventory much quicker.

Another valid question — How many of these delinquent homeowners will actually be interested in becoming renters? In some hard hit states like Nevada or New York, foreclosures can take up to several years. So what is the motivation for a delinquent homeowner to start owing rent when they can potentially sit in the home for free for an elongated period of time.

These concerns are the reason for such a small test market. Bank of America will be monitoring the program closely, potentially expanding it or shutting it down depending on homeowner reaction.

Although it is an alternative to foreclosure, when stacked up against something like the government’s HARP 2.0refinance program, it seems that homeowners with Bank of America loans are getting a raw deal.

Additionally, the program does little to quell rising concerns that America is becoming a nation of renters.

What do you think? Should Bank of America be obligated to do more for their borrowers like allow them to refinance even though they may not traditionally qualify? Or is the Mortgage to Lease program a good option for underwater homeowners?