LOS ANGELES—Bank of America is working “very hard” on a short sale-to-lease program for distressed borrowers who don't qualify for government-backed refinance programs.
But the much-maligned bank won't move forward until it gains assurance from regulators that borrowers are being treated fairly.
As outlined by B of A executive Ron Sturzenegger at the Urban Land Institute's fall conference here last week, the bank would regain title to mortgaged properties under a short sale arrangement and then lease the houses back to their occupants for three years for rents that approximate the average for their particular areas.
At the end of the 36-month lease, Sturzenegger said during a panel session on capital markets the institution would resell the houses to people who wanted to buy them back. He did not say what price buyers would have to pay to reclaim ownership from the bank.
Sturzenegger, who is managing director of legacy asset servicing at B of A, said investors are interested in the program, as are borrowers. But two obstacles still need to be overcome before the program becomes operational, he said, governmental clearance and finding someone with the ability to run it.
He told the session that regulators have to give their blessing that the bank is being fair to its borrowers. He also said that while the conceptual side of the effort is in place, it will be “a challenge” to get the operating side in place.
On the massive number of foreclosures that are currently in the pipeline nationwide, Sturzenegger said the real issue isn't the overhang but how long the process takes. “It can take an average of 24 months” from the time a borrower becomes delinquent until the house is finally repossessed, he told the conference.
To deal with the problem, the B of A executive would have states allow lenders to take back the 40% of the defaulted properties that are vacant in a quick 30 days.
The other 60% of houses in the foreclosure pipeline are still occupied by their owners, and would continue to slowly wind their way through the process so those borrowers would have every opportunity to remain in their homes, he said. But if lenders can prove the properties are no longer occupied by their owners, they should be able to reclaim those houses in a month, he told the conference.
