With the beginning of Bank of America’s trial “Mortgage to Lease” program, analysts, critics, and homeowners alike are all wondering if the program will actually work.
The fact that the idea isn’t new and has been tried before – with less than stellar results – might cast some doubt on the process.
The current trial plan calls for up to 1,000 underwater mortgages to be transferred to leases, under which the current homeowner will be allowed to live in the home for up to three years in exchange for handing over the deed to BofA. The program would allow these underwater homeowners – who owe more on their mortgages than they are currently worth – to stop foreclosure or avoid it altogether and spare themselves the serious consequences of the foreclosure process, all because they could not reach some acceptable loan modification with the lender or find some other way to halt foreclosure.
A similar version of this plan was attempted three years ago by Fannie Mae, the government-sponsored enterprise that backs roughly 40% of all mortgages in the U.S. Needless to say, the plan did not take root and is not being operated in any large-scale capacity today.
This history, combined with additional criticisms, has left many wondering if BofA’s new program will find success where earlier attempts have failed.
One main criticism is the notion that there is no long-term path to ownership for homeowners, which means the title will just be sold to investors who could renegotiate contracts. Indeed, those within BofA state that the lender intends on selling the pilot homes to investors within three months. Homeowners in this instance would eventually be forced from the home; the only advantage is that they would not have their home become one of the hundreds of thousands of foreclosure properties and foreclosure listings in the market today.
Another criticism is that the plan will not do much to actually reduce the number of home foreclosures that make their way into the market – nor will it have anything to do with foreclosure listings that are already up for sale. The lack of participation with the previous Fannie Mae iteration suggests that BofA’s program will have even less of an impact on the market.
Still, for the select underwater homeowners and BofA customers who do benefit, the program will come as some relief – suggesting it could be copied elsewhere.