BoA to try Landlording to avoid Foreclosures
I assume everyone saw Bank of America’s announcement yesterday. They are piloting a program to rent homes versus foreclosing. The plan is to have homeowner’s that are obviously headed to foreclosure to deed the home over to the bank and then rent the home back from the Bank.
This sounds good for the homeowner. They will get out of their underwater mortgage without a foreclosure and get to stay in the home. My question is will they be able to pay rent when they could not make their mortgage payment? The rent might be cheaper as they will not have property taxes and insurance. It also sounds like BoA might set the rent lower than market rent. This concerns me as a landlord. First they plan to flood the market with rentals and price them below market rent. This combo has got to lead to lower overall market rents.
This will certainly have BoA in the landlord game. So they are obviously going to hire property managers, insure all these homes, pay the property taxes, etc. I just see the costs rising. I assume they met in a conference room and analyzed this to death, but I am just not sure what they are trying to do here.
I suppose they want to avoid taking write downs, but the article mentions selling these occupied rental homes to investors at some point. It seems like they would have to take the write off at that time. This sounds like just a band-aid to me and I am sure they underestimated the cost of property management. I predict their little pilot project won’t work, but I guess we will have to wait and see. If it does work then other banks will follow suit and then they are just extending the pain on this whole housing issue.
Here is the complete article.