Bank of AmericaAlthough the recession has officially ended, the foreclosure rate in America is still at an alarming high. It comes to no surprise that 20 percent of the homes sold in 2011 were foreclosed properties and 15 percent were short sales. Lender, Bank of America, realizes that it is losing a tremendous amount of money with foreclosures and short sales – especially over recent years. To combat the loss of money and to assist homeowners, it has created the Mortgage to Lease program.

Cutting the Shadow Inventory

Bank of America plans to use the Mortgage to Lease program to combat the “shadow inventory” from building up. The shadow inventory refers to homes that have not yet completed the foreclosure process. What most homeowners and lenders fail to realize is that it takes an estimated 2 years and $78,000 to complete the foreclosure process on each individual home. Until the home completes the foreclosure process, the lender cannot sell the property on the market.

What Does That Mean?

Although the current supply and demand on the American real estate market have been equally balanced this year, there are still 1.6 million homes, as of 2012, that have not been put on the market. That means 1.6 million homes are sitting in the shadow inventory, implying the overall supply is well above the demand for properties. Lenders like Bank of America have properties worth millions just sitting in their inventory, keeping them in debt until they leave the shadow inventory. These shadow inventories are highly condensed in only several states, specifically, California, Florida, Illinois, New Jersey, New York and Texas – with a combined share of 50 percent of the overall shadow inventory.

“Mortgage to Lease” Foreclosure Program

Bank of America has selected approximately 1,000 of their borrowers to undergo the “Mortgage to Lease” foreclosure program test trials. Selected borrowers will transfer their titles back to their lender, Bank of America, and in return, their mortgage debt responsibilities are alleviated. Bank of America will then allow the homeowners to rent their homes at a smaller monthly fee that rivals with competitive rental pricing in their areas. Eventually, Bank of America will sell the homes to investors. The test program is currently run in Arizona, Nevada and New York but will expand to other states if the trials turnout to be successful.

Specifications for the Program

Bank of America has created a specific formula when selecting homeowners for their “Mortgage to Lease” foreclosure program. In order to be eligible for the program, a homeowner must:

–          Be considered “at risk” of foreclosure

–          Be 60-days or more behind on their mortgage payments

–          Have a loan balance higher than their home value.

–          Not be eligible for any loan modification programs

–          Have an expected income rate to pay smaller rent expectations (varies on area)

If successful, the trials will expand and many homeowners will be able to participate in this program – offering them a last resort choice before foreclosure and short sales.

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This is filed under Foreclosures.


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