People are watching with interest as Bank of America ($9.23 0.03%) rolls out its mortgage-to-lease program. The appeal is obvious to consumers who get a chance to stay in their homes, but will this new program spark a new fad in the mortgage industry?
Alex Matjanec, co-founder of MyBankTracker.com, said it might, but not just yet.
“I think the natural thing is for the banks to sit and wait,” he said. “They are going to wait and see how Bank of America is going to do it and see how it turns out for them.”
But the program does present serious temptations for banks. Holding onto the titles of the homes for a little while before selling them allows the bank to hold out until the home’s value increases, so they can get back more of their money. It also solves the problem of the home being vacant, so its value isn’t driven down.
“What this essentially does is create an opportunity to wait to get the optimal value of the house,” Matjanec said.
Matjanec said it is also a “better move” for the economy as a whole.
“This makes it less likely people will file bankruptcy, and makes it more likely that they’ll continue to buy things as they usually do,” he said. “They can say: My day-to-day life will stay the same, except now I’m renting.”
But even though they continue to spend as usual, Matjanec said those who agree to participate in this program need to begin to start saving immediately, because BofA could sell their home at any time, and there is no guarantee they can continue living there.
“The bank is promising that you can live in your house for up to three years, but they can’t promise that you won’t be moving out five days from now,” he said. “The most important thing to do is to start saving and not live like things are going to get a lot better.”
Either way, this seems like something that will catch on. If banks can keep someone paying the rent even if it’s lower than a mortgage payment would be, and then can wait to sell the house for an optimal price, it seems as though the banks are winning out in the end and helping customers remain as financially stable as possible. I wouldn’t be surprised if this became the new principal reduction.
By: Jessica Huseman