BofA tries turning distressed homeowners into renters

Testing a mortgage-to-lease program in the Golden State, Bank of America Corp. sent 300 letters this week inviting borrowers without other options to apply. An additional 1,500 letters will go out in the next few weeks as BofA — which also is testing the program in three other states — evaluates whether a national rollout is feasible.

BofA plans to sell the homes to investors. It typically would recoup far less than what's owed but would come out far ahead compared with where it would be after evicting borrowers, making "cash for keys" payments to help them move and selling empty and often vandalized foreclosures in the troubled housing market.

Evicted homeowners tend to look for single-family homes to rent in their own neighborhoods anyhow, so why not let them exchange the deed to the home for a lease, BofA executive Ron D. Sturzenegger said.

"It's good for us, it's good for the borrower and ultimately good for the community," said Sturzenegger, who oversees 50,000 employees handling workouts and foreclosures on troubled loans.

Borrower advocates say the approach, providing a cushion for homeowners at the end of their rope, is long overdue. They point out that mortgage giant Fannie Mae has had a similar "deed-for-lease" program for 2 1/2 years for the occupants of foreclosed homes it owns.


Bank of America emphasized that its test program is limited to borrowers it selects, so homeowners can't sign up themselves. It's available only on mortgages the bank owns — just 15% of the home loans for which it collects payments. The other 85% are owned by investors in mortgage securities.

The homeowners must be at least 60 days behind on payments and must have been run through every available loan-modification program without success, because they either didn't qualify or had rejected an offer from the bank.

Those willing to become renters must resubmit financial information so the bank can verify that they can afford typical rent payments for their local housing markets. If they qualify, they'll conduct what's known as a deed-in-lieu transaction, swapping their claim to ownership for a lease.

The leases are for a year, with options for the residents to renew for two more years. Since the damage to credit ratings from deed-in-lieu transactions is erased after three years, the renters at that point would have an easier shot at buying a home again, Sturzenegger said.