Bank Of America is rolling out a new program that will allow homeowners in foreclosure to be able to stay in their homes. There is a small catch - you will stay in the home as a renter. The new program will be tested in Arizona, New York, and Nevada. If it is a success, it is widely expected to be rolled out nationwide and then likely implemented by other major banks.
It is being called a mortgage to lease program. You agree to voluntary sign over the deed to your home. In exchange, you can lease the property for three years. You would also not be required to pay back the amount of money that your home may be under water. Bank Of America says this program represents a last resort option for those homeowners that are at the end of the line and have not been able to resolve their delinquent mortgage any other way.
I don't know why, but something about this just really makes me angry. The idea of millions in foreclosure becoming renters just does not seem right somehow. Maybe my frustration is partly due to the fact that I have seen so many ridiculous programs with the word HOPE in them that offer nothing but to those that earnestly want to save their homes. The idea of allowing those in foreclosure to rent their homes has been proposed previously. One big positive of a program like this was supposed to be the homeowner having a guaranteed buy back right at the end of the lease for a a pre-agreed on price. No such provision appears to be included in this new program. Furthermore, you will have to be approved as a renter by establishing that you have enough income to pay the lease along with your other monthly obligations.
One major benefit to a family would be the ability to avoid moving. Adding to the whole stress and strain of losing your home includes moving your children away from their neighborhood friends and possibly having to change schools as well. Additionally, many homeowners that become renters learn quickly that rental homes are not likely going to be as nice as what they are accustomed to. Most rental homes have just the bare bones basics, low grade carpet and appliances, and simply do not have the amenities that would be typical in a home occupied by a homeowner.
Securitization Of Single Family Homes Coming?
A few weeks back, Warren Buffett said in an interview that he would be buying large amounts of single family homes if there was a practical way to do so. What exactly did he mean by this? He was pointing out that there is currently no way that an institutional investor can press a button and become the owner of hundreds of thousands of houses. Each sale would require a closing to transfer the title. Each property would have to be managed, the rent collected, etc... What if tens of thousands of houses were acquired by a bank through a program such as the one Bank of America is launching? What if these houses were packaged together and sold as a giant portfolio to a Warren Buffet or other institutional investor? It appears that this may be exactly what is coming.
The unfortunate part of this would be that many neighborhoods may become largely comprised of rentals vs. owner occupied homes. In the long run this would likely lead to a decline in the overall quality of life and condition of these neighborhoods. My grandparents purchased a nice two bedroom home near Disney World in the 1980's. They lived in a beautiful community with two golf courses and had neighbors that manicured their lawns and took great care of their homes. Now, 25 years later, their community has become mostly rental homes. The grass on the golf courses is ten feet high as they went out of business years ago. Crime increases year after year, to the point that what once was a resort community now resembles an inner city ghetto.
Some might argue that rental homes in a neighborhood are a better option than vacant homes. I would have a hard time arguing with that, but feel that something integral to the American dream is dying here. I personally believe that home ownership, while not for everyone, represents a person's individual stake in our society. I simply can't imagine millions of homes that were owned by families now being traded among billionaires like stocks and bonds.
This arrangement will also likely feed into the Wall St. vs. Main St. narrative that is currently being used to divide our country. When things go full circle and millions lose ownership of their homes and begin making monthly rent payments to Wall Street investors, that may simply be too dark of an ending to the American dream for the masses to accept.
I am very curious what you think about a program like this. If you are in foreclosure, would you consider this option? Please use the comments section below to share your thoughts.
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