It seems like it was only yesterday that when an investor wanted to purchase a property through the short sale process, two things that the Banks demanded were that the homeowner was not to receive any cash and that they were not allowed to stay in the property after the sale. All of that has now been turned on it’s head. Some banks are now offering cash to homeowners for the keys to the property and now BoA will allow some owners to stay on as tenants. The idea is to eventually sell the properties off to investors. Good news for investors and it’s been a long time coming.
Bank of America Corp. has tentatively joined a nascent housing industry movement in which homes in or near foreclosure are sold to investors as rental properties.
The bank on Friday began a test program for 1,000 homeowners headed into foreclosure in Nevada, Arizona and upstate New York — borrowers it has been unable to help with loan modifications but hopes to keep on as renters. If successful, the program could be tried in California and rolled out nationally.
Consumer advocates maintain it often would be better for homeowners, communities and the banks themselves to keep troubled borrowers on as renters rather than kick them out. Seizing and selling empty homes creates neighborhood blight and accelerates downdrafts in housing prices, they contend.
Bank of America doesn’t plan to become a longtime landlord for borrowers turned tenants. In the pilot, it hopes to take possession of homes for no more than three months before selling them to investors making a bet on the recovering housing markets. If the program becomes established, the goal would be for the investors to take over as soon as the occupants relinquish ownership and pay the first month’s rent.
Whether this scheme can work is to be determined by the pilot, the first such test announced by any major mortgage company. The bank wants to find out whether getting a loan off its books with a quick sale at a deep discount is a better deal financially than the foreclosure process, which can drag on for months or even years in highly regulated states such as New York.
“This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support,” said Bank of America’s Ron Sturzenegger, who oversees about 1 million troubled loans inherited from aggressive mortgage giant Countrywide Financial Corp., which Bank of America purchased in 2008.
Homeowners can’t apply for the program themselves, a bank spokesman said.
The trial is limited to a tiny slice of the 1 million loans that Bank of America owns outright. It is not testing any of the additional 8 million home loans on which it provides customer service but which are owned by investors in mortgage bonds.
Bank of America executives said the 1,000 homeowners selected are all at least 60 days late on their loans and are not qualified for or not willing to accept other alternatives to foreclosure.
They will be offered one final deal: hand their property titles to the bank, which would cancel their mortgages in what’s known as a deed in lieu of foreclosure, and sign contracts agreeing to rent the home for up to three years at or below market rates.
Hopefully this program works out for all parties and the foreclosure backlog starts moving again.