A brilliant idea, about 4 years too late

As reported in the March 23, 2012 edition of The Wall Street Journal, Bank of America (BofA) is testing out an option to foreclosure: allowing owners to remain in the homes as renters.  The article, by Nick Timiraos, begins with the following four paragraphs.

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.

While the initial scope of the “Mortgage to Lease” program is small – the bank began sending letters Thursday offering leases to 1,000 homeowners in Arizona, Nevada and New York – it represents a big change in the way banks deal with borrowers who can’t afford their mortgages.

Until now, banks have focused the bulk of their borrower outreach on modifying mortgages, usually by reducing the monthly payments.  When that doesn’t work, most foreclosures alternatives require homeowners to leave their house, typically through a short sale, in which the bank approves the sale for less than the amount owed.  Banks often insert clauses forbidding the new owner from renting the property back to the former owner.

The new approach is unlikely to be expanded unless banks conclude that avoiding eviction reduces costs associated with taking back, maintaining and reselling properties.  If a significant number of borrowers are willing and able to rent the homes, Bank of America could ultimately sell the properties to investors that agree to keep them as rentals.

Okay, it’s a step in the right direction by Bank of America.  But what took so long?  Aren’t bankers supposed to be smart (that’s why they get all tha money)?

Can you imagine where our economy would be right now if officials at Bank of America and other lending institutions thought outside the box?  The number of foreclosure would be substantially reduced.  There would not be instances of almost entire communities abandoned due to unoccupied foreclosed homes , which attracts criminal activity , which leads to reduced home value (net worth).

I wonder if Bank officials reflect on their past strategies of dealing with homeowners facing foreclosure .  Sorry, that’s right, I’m talking about a bank.


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