Bank of America Corp (NYSE:BAC) is set test a special program to help home owners who are at high risk of losing their homes due to foreclosure. The concept of the program is simple: the home owner hands the deed back over to the bank and they can sign a lease that enables them to rent the house directly from the bank on terms of market value.
The program is called “Mortgage to Lease” and they are sending out invitations to select home owners in Arizona, New York, and Nevada. This plan will not only help banks increase their income in the form of large monthly payments, this will enable home owners to continue to live in their dream homes. It is still to early to see if Bank of America’s plan will officially catch on as there are many possible factors that could hinder the plan. Initially, banks will have to decide if the cost of buying back and renting out properties will outweigh the cost of foreclosing a home. It is possible that if this program catches on, the bank could sell the homes directly to investors who would in turn becoming leasing agents.
I think BoA’s plan sounds smart and kind of scary at the same time. It sounds like a solution that just might work for both banks because it enables the banks to make profits while keeping the foreclosure rate down but it’s also good for home owners who are afraid of losing their home. The one thing about this plan, if it indeed catches on, that isn’t so good is that it could completely diminish the American dream of owning a home. It’s also important to note that they might not be able to keep up with the lease if the rates keep changing because of market value and that would take them back to square one. Moreover, if banks and investors are the sole proprietors of all or most houses and condos, it would monopolize that segment of the economy.