BAC: Mortgage to Lease Program

[dcollon]

It will be interesting to see how this (see attached) does. 

Bank_of_America_Tests_Rental_Program_as_Alternative_to_Foreclosure_-_NYTimes.pdf

[ubuy2wron]

I know nothing about how this impacts capital ratios etc. but my only question is what took them so long. This is exactly how Ireland dealt with their housing collapse. If this catches fire it could be the single biggest thing short term for housing prices. A rent to own program is a huge win for every one involved .

[CONeal]

I'm not real fond of this program.  As a landlord, the issues and bullshit you have to put up with renters, having people trash the place then leave.

 

On a small scale this can be a hassle at times.  On a large scale this could turn into a major pain for the bank.

 

Wait till they try to evict someone for not paying rent.  You end up having a squatter for 6 months while the legal proceeding compelte to remove them legally.

 

 

[ERICOPOLY]

They have an image problem.  Every time they have news leak about a pilot program to raise fees, people get outraged.  Even when it's just following the lead of peers (like copying Wells Fargo's fees for new checking accounts).

 

So this could perhaps be a PR stunt:  have a warm & fuzzy feel good test pilot program that people can cheer BofA for.

[rkbabang]

They have an image problem.  Every time they have news leak about a pilot program to raise fees, people get outraged.  Even when it's just following the lead of peers (like copying Wells Fargo's fees for new checking accounts).

So this could perhaps be a PR stunt:  have a warm & fuzzy feel good test pilot program that people can cheer BofA for.

 

I can easily see how this program can be turned into a negative PR event as well.    This could be characterize as "We lent you way more money than your house is worth or you could afford to pay us back for which we got bailed out.  Now instead of just kicking you out and getting a small amount for the property in this depressed housing market or just letting the house sit vacant, we'll just take the title to your house and let you pay us to live there for a few years while we wait for the market to come back. Once it does we will then kick you out so we can sell it." 

 

It definitely makes sense for BAC to do this.  I'm not sure it makes for very good PR though.

 

From a PR prospective.  It might make sense to say to these home owners.  Listen you screwed up and we screwed up.  You borrowed way more than you should have borrowed and we gave you more than we should have let you borrow.  We got bailed so that we wouldn't suffer the full consequences of our mistake but you didn't.    Your house was "worth" $500K, you owe $500K, and now it is worth $300K.  If we foreclose we'll only get $250K-$275 for it.  Let's split the difference, we'll refinance your mortgage at today's rate with a balance of  ($what you owe - ((what you owe - what we'd get)/2)) or ($500K - (($500K-$275K)/2))=$387.5K at probably a much better interest rate than what you have.

 

If it made this offer, some people might accept it as a way for them to stay in their homes.  Others would decide that it still leaves them "trapped" and underwater (or they still couldn't afford it) and say no, in which case BAC could foreclose.  For the customers that did accept it BAC would benefit by owning a loan that the homeowner could afford and would not need to forclose and loose a ton more on the property.  Does this make sense or am I missing something?  It would have to be offered only to a select group of customers on a one time basis only when it will benefit both the bank and the customer.  And not an open offer on an on-going basis.