Bank of America to Test Offering Rental Option to Customers Facing Foreclosure
It was revealed on Friday that the Bank of America (NYSE: BAC) is looking into the possibility of offering customers who are facing foreclosure the option of remaining in their homes and renting the property instead.
The issue of foreclosures remains a hot topic, although many politicians are reticent to touch it in an election year. Some real estate experts believe that the foreclosure process should be allowed to run its course, as there are a lot of people who own homes that they cannot afford.
Meanwhile, there are calls for a controversial new program which will see people entering into default have their principal reduced by up to $50,000. Potentially, $25,000 of that money will be refunded by the government at the taxpayer's expense. Fannie Mae and Freddie Mac have their reservations, as do many politicians who don't believe that this is a valid use of tax dollars. Some analysts are claiming that the move could blossom into an ugly mess, as people will “strategically” enter into default in order to get their principal reduced.
But this new idea from BAC is fairly fresh, and on the surface it seems like a valid solution. The bank gets possession of the property, while the resident gets to stay in their home.
According to the Bulletin, the pilot program will initially be offered to roughly 1,000 consumers in New York, Nevada and Arizona. Customers will be asked to give up the title to the property, and in exchange the bank will forgive the debt. The customer will then be able to rent the property for up to three years.
Details of the program are still being ironed out, but it seems controversial that the customer will only be allowed to stay in the property for three years. In other words, the bank is giving them a three year grace period to find another home. If the person's financial situation improves in those three years, will they be able to repurchase their own home?
The rent payments will be lower than the previous mortgage payments, and they will be set at or below market rates. If the program is successful, the bank will expand it into other states.
“There isn't much of a question about investor interest,” said Dan Frahm, a spokesman for Bank of America. “What we're testing for is customer interest.”
Qualifying customers will obviously need to hold a mortgage owned by the Bank of America. In addition, that mortgage will have to have been delinquent for over 60 days, they will still be living in the home, and they will have exhausted all other options.
Customers with mortgages serviced by BAC but owned by other investors like Fannie Mae or Freddie Mac will not be eligible.
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