Bank of America throws homeowners new lifeline

Bob Moon Mar 23, 2012

Kai Ryssdal: There’ve been, what, half a dozen or more federal programs meant to help struggling homeowners the past three or four years, right? Refinancing, mortgage assistance — the government’s tried pretty much everything. Nothing’s really worked so far.

But today, Bank of America came up with something new-ish. B of A’s offering a select group of customers the chance to wipe away their mortgages and stay in their homes as tenants. Mortgage-to-lease is what it’s being called. It’s a pilot program, to be sure, open to less than a thousand B of A mortgage holders in three states who’re at the end of the foreclosure ropes.

But if it works, it’d be something that works. Here’s our senior business correspondent Bob Moon.

Bob Moon: Like many Phoenix homeowners, Sharon Gallagher owes far more on her mortgage than her house is actually worth. She says she’s considered walking away from a home she’s convinced will never be worth her total investment. So Gallagher is intrigued by the idea that she could wipe away her mortgage obligation for a more affordable payment, with only a limited impact to her credit score.

Sharon Gallagher: If we wouldn’t have a major drop in our credit rating, that would be the biggest appeal to me. I would probably take full advantage of it and then just find another home.

Homeowner advocacy groups are welcoming Bank of America’s pilot program. John Taylor heads the National Community Reinvestment Coalition.

John Taylor: I’m ready to throw roses in front of any banks that are taking initiatives to try to get ahead of the foreclosure problem.

Taylor suggests a further incentive to help acceptance of the program: Giving the homeowners-turned-renters the chance to buy back the title to their home, if they stay current on payments. Bank of America told us today there is “nothing to restrict the original owner from acquiring the property again.”

At Washington’s Center for Economic Policy and Research, Dean Baker says if the program works, it could help ease the foreclosure fallout across the country.

Dean Baker: This is the sort of thing that prevents the blight of foreclosure that has been so devastating for many communities. Because if you keep someone in the home who’s a long term tenant who knows they can stay there for three years, they have a really strong incentive to keep the place up, even though they’re not an owner.

Phoenix homeowner Sharon Gallagher remains skeptical, though, that she’ll ever receive this kind of offer. She’s been searching for some kind of solution to her mortgage troubles for more than two years now.

Gallagher: I’m just trying to figure out what else they have to gain. I don’t — I don’t trust banks particularly.

I’m Bob Moon for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.