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Lance Denha Discusses the Effect of the Rental Program Recently Launched by Bank of America

  (April 03, 2012)

(PRWEB) April 03, 2012

Five years into the worst housing collapse since the Great Depression, the inventory of seized properties continues to weigh on the housing market and on the price of every house lenders try to sell. Even with the slowdown, mortgage lenders like Bank of America have accumulated a huge backlog of unsold homes. Last month, one in five homes sold in the U.S. were in foreclosure, according to the National Association of Realtors. Another 15 percent were short sales in which lenders like Bank of America agree to let a homeowner facing foreclosure sell the house for less than they owe.

In an effort to stem the tide of increasing costs of home foreclosures, Bank of America has launched a pilot program that will let some homeowners at risk of foreclosure become renters and stay in their homes. Fewer than 1,000 in Arizona, Nevada and New York will be enrolled in the test program, which is only a week old. Those selected will transfer the title of their homes back to Bank of America and have their mortgage debt forgiven. The homeowners can rent the homes for up to three years at or below their areas market rental rate. And they will not have to pay property taxes or homeowners insurance.

The program, called Mortgage to Lease, uses an old but increasingly popular technique for lenders. Its called a deed in lieu of foreclosure. It occurs when homeowners turn over the deed to their house to their lender because they cant make the monthly payments.

While this inventive approach will have an initial effect of assisting some homeowners in default of their mortgage, the real winner is Bank of America. Because borrowers voluntarily agree to sign over their title, the program could help Bank of America avoid any potential legal hurdles in cases where shoddy paperwork makes it difficult for the lender to prove it owns the mortgage and has a right to foreclose. In some states, increased scrutiny of those documents have slowed the pace of foreclosures. Nationwide, lenders completed some 860,000 foreclosures last year, down from 1.1 million in 2010, according to CoreLogic.

Other residual economic value offered by this program to Bank of America is obvious. Should a homeowner that has turned over the keys to their home default on a rent payment, seizing the property is less costly and with little legal opposition then foreclosure. Additionally, should the homeowner pay rent for the entire term, Bank of America is now receiving rent where no payments were being made previously and there is a greater likelihood that the property will have appreciated in value of which Bank of America is the beneficiary. If the homeowner can afford rent, perhaps a concerted effort to modify their original mortgage would have been in the greater interest of the borrower.

As noted earlier, the list of potential renters will likely be relatively short. Even if the pilot program is expanded, only about 10 percent of homeowners whose mortgages are owned directly by Bank of America would be eligible. Not included are the roughly 60 percent of Bank of Americas loan portfolio held by Fannie Mae or Freddie Mac, the two big government-controlled mortgage companies.

It is highly advisable to seek legal expertise to determine the best course of action moving forward in order to gain an understanding of the particular direction best suited for the client. Lance Denha has professionally challenged foreclosures, negotiated any deficiency and sought out alternatives to foreclosure. The Law Offices of Lance Denha has the prerequisite legal knowledge and expertise readily available to assist homeowners to stay in their homes. For further information or assistance, please call at 954-840-0770.

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