Better late than never: B of A adopts own-to-rent

First, years after I first heard Dean Baker raise the idea, a major bank has introduced an “own-to-rent” program that would enable homeowners at risk of default on their mortgages to keep living in their homes.

From the WSJ:

Bank of America Corp. is launching a pilot program that will allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.

The pilot will be quite limited, offered to only 1,000 homeowners in Arizona, Nevada, and New York. That’s smart—it should quickly become clear if homeowners want to take advantage of the offer and how effectively the bank can implement it (Fannie has a similar program but it’s hardly been tapped).

Homeowners facing foreclosure will turn their title over to the bank in exchange for the right to rent their home for three years at market rents. The bank may sell the home to an investor but that person will have to agree to continue the rental agreement, at least for the three year period.

What’s in it for the homeowner? They can stay in their home/neighborhood, sustain less damage to their credit rating, and come out from under an unsustainable loan.

What’s in it for the bank? They own the property without going through the long foreclosure process and the avoid the risk of a foreclosed property sitting out there on the glutted residential home market, losing value and bringing down the value of neighboring homes.

There are potential downsides, of course, which Yves Smith points out. If the banks won’t eat second liens, then the reach of this would be limited, which has been true of virtually every foreclosure mitigation program. And there’s still the problem of having a bank as your landlord, or whatever property management companies they use.

But if this does work, it would represent the fact that the banks have screwed up so royally, particularly BofA, that the only way out is one that accidentally benefits the homeowner in the process. Hopefully some other banks will join BofA in this effort.