MSNBC: Bank of America renter program could help its bottom line
By John W. Schoen, Senior Producer
What do you do if you own more foreclosed homes than you know what to do with —and there are more on the way?
In Bank of America's case, you might want to become a landlord.
The San Francisco-based lender said Thursday it's going to try out the idea of offering homeowners the chance to stay on as renters as an alternative to seizing their properties in foreclosure. The plan would let those families stay on for as long three years.
''Our priority is designing a solution that helps our customer,'' said Ron Sturzenegger, Legacy Asset Servicing executive at Bank of America in a statement. ''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.''
Converting families into rent-paying tenants after Bank of America seizes their homes would also help boost Bank of America's bottom line, in several ways.
Many of the homes Bank of America takes back sit empty and require upkeep until a buyer can be found, often at a fire sale price. Renting those homes back to their former owners would also provide Bank of America with a new source of revenue and give the bank more time to find investors to buy the property, helping to avoid slashing the sale price as it works to clear a glut of unsold properties.
The pilot program initially will be offered in New York, Nevada and Arizona to about 1,000 homeowners about to lose their properties after they agree to hand over the title to Bank of America. Rents, which bank officials say would be less than the former homeowners' monthly mortgage payment, would be set at market rates, based on independent estimates, according to a bank spokeswoman.
Homeowners won't be able to apply for the foreclosure-to-rent program; Bank of America said it will chose the initial round of potential participants and has already begun contacting some of them to make the offer.
Bank of America will now offer customers facing foreclosure the option to rent their home, for less money than the mortgage. CNBC's Diana Olick talks about the program, which will be tested in New York, Nevada and Arizona.
The list of potential renters will likely be relatively short. Even if the pilot program is expanded, only about 10 percent of homeowners whose mortgages are owned directly by Bank of America would be eligible. Not included are the roughly 60 percent of Bank of America's loan portfolio held by Fannie Mae or Freddie Mac, the two big government-controlled mortgage companies. Families with mortgages that were sold off to investors or who have home equity loans would also not be included.
Because borrowers voluntarily agree to sign over their title, the program could also help Bank of America avoid any potential legal hurdles in cases where shoddy paperwork makes it difficult for the lender to prove it owns a mortgage and has a right to foreclose. In some states, increased scrutiny of those documents have slowed the pace of foreclosures. Nationwide, lenders completed some 860,000 foreclosures last year, down from 1.1 million in 2010, according to CoreLogic.