Bank of America Launches Test “Mortgage to Lease” Program – Should We Be Impressed?

The Wall Street Journal and New York Times have reports on a pilot program at Bank of America to allow homeowners who are likely to default a graceful exit. The Charlotte bank will allow 1000 borrowers in New York, Arizona, and Nevada to turn in the deeds to their houses in return for a one year lease with a two one year renewal options at or below market rates. The program will be only with borrowers invited by the bank, which will target homeowners who are at least two months behind on payments but can demonstrate that they can pay the rent. The Journal cites an example of a Phoenix home with a $250,000 mortgage with payments of $1600 a month. It estimates the rent as $900.

This is clearly a preferable alternative for homeowners to foreclosure. They escape the credit score damage, stress, and indignity of the foreclosure process and save moving costs. They are also spared the difficulty of finding a landlord who will accept a tenant with a tarnished payment record. It isn’t clear how the program will handle the usual rental deposit. So what’s not to like?

The devil, as always, lies in the details. Even if the program turns out to be a positive experience for borrowers and the bank, it is not clear that it is a magic bullet for the foreclosure mess. The bank is conducting the pilot on loans it owns. It appears adhere the IRS rules governing REMICs, which limit leases to two years, so the hope is that this program would be rolled out to Countrywide mortgages, which were almost always securitized.

However, it is hard to imagine that balance-sheet-stressed Bank of America would include properties that had bank-owned second liens on them, since the second would be a total loss. Borrowers with second liens have much higher default rates than those with first liens only, so many borrowers in need of help are likely not to be invited to participate.

One open question is property management. Anyone who has had a bad or lazy landlord can tell you what an awful experience it is. Banks have done a terrible job of securing and maintaining foreclosed properties. How responsive will they be when a boiler fails or the roof develops a leak or a tree falls down in a storm and damages the house?

A second question is the appetite of investors. Bank of America maintains it has plenty of demand from big investors, and the Obama administration is separately keen to promote bulk sales of foreclosed properties. I don’t see the sort of investors being bandied about, namely private equity firms or distressed investors, being good candidates. They have high return requirements and can’t manage their way out of a paper bag. And being a landlord is operationally intensive, particularly when dealing with dispersed single family homes.

Consider two cautionary tales. One is the famed purchase of Stuyvesant Town, a large complex of middle income rentals in Manhattan with a lot of rent-regulated apartments. It is still a mystery to me how this deal got done. Tishman Speyer and Blackrock made the purchase at top of market prices, and the marketing pitch assumed that they’d be able to turn a very high percentage of units into condos and sell them. But that made no sense on these apartments. Any tenant that is current in a rent regulated apartment in New York City can’t be denied a lease renewal. The housing courts have seen every bad landlord trick in the book and have little patience with them. The new owners tried harassing tenants to get them to give up their leases. When the court ruled that the investors had brought apartments illegally out of rent stabilization, the owners defaulted.

The other is the behavior of Fortress, which happens to be the name most bandied about as a prospective bulk sales buyer. But the model for Fortress appears to be the Gagfah. Some cash-strapped German cities were privatizing housing, and Fortress-controlled Gagfah bought 45,000 rental units from Dresden. Gagfah agreed to give existing tenants the right of first refusal on any sale. It was also criticized in local media for neglecting repairs. Gagfah was sued for €1 billion by Dresden and settled for €40 million.

Mind you, both of these deals were far simpler from an operating standpoint than what investors in any Bank of America sold homes will encounter Sty Town and the Dresden apartments were large, compact complexes with seasoned property management in place. By contrast, any houses acquired will be dispersed and the new buyers will have to set up or contract out the property management, and it’s unlikely that there is a turnkey solution..

And if returns flag because investors underestimated operating cost or aren’t able to flip homes when the leases expire, what do you think they will do? They are certain to neglect upkeep. They are likely to jack up rents but presumably will be constrained by supply in the area. And who will investors sell these properties to when they realize that the prices they can get in 3-4 years don’t provide their target returns? Private equity firms are not interested in being long term managers; they want to get their money out as quickly as possible.

I’m not certain the appetite for these properties lives up to the curiosity level, unless PE investors somehow have convinced themselves that the real estate market will rebound strongly on their timetable. I suspect all the hype and a few cherrypicked deals will set up dumber money, like insurance companies and public pension funds, which will go into REITs or other securitized investment vehicles. But the big issue is that these deals being done in scale and working out well depends not just on banks figuring out how to make them work to salvage borrowers, but also addressing the property management challenge.

But the real driver came at the very end of the Wall Street Journal article:

Foreclosures have slowed sharply in some states amid heavy scrutiny of allegedly forged paperwork used by processing firms. Banks completed 860,000 foreclosures last year, down from 1.1 million in 2010, according to CoreLogic Inc.

“One of the outcomes of the ‘robo-signing’ scandal is that it is more difficult to foreclose,” said Mr. [Dean] Baker. “It’s more worthwhile for banks to pursue alternatives.”

In other words, banks are so badly hoist on their own petard that they have to consider doing the right thing. But given their track record, I wouldn’t bet on them pulling it off in the way the great unwashed public hopes they will.

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55 comments

  1. Lafayette

    IT TAKES TWO TO TANGO

    Borrowers with second liens have much higher default rates than those with first liens only, so many borrowers in need of help are likely not to be invited to participate.

    In the SubPrime Mess there are those who were foreclosed who should never have been given the loan – had creditworthiness verifications been performed adequately.

    Some will think that this is the fault of the Banksters and, arguably, they have a point. But a contract (meaning a loan or mortgage) is a bilateral commitment. Consumers too have an obligation to assess the risks and think carefully of their engagement. (Yes, it’s like a marriage where both sides are responsible for the actions that commit them to a mutual agreement.)

    There are many, many people, in the hey-day of the SubPrime Lending Spree who should have stayed away from either first or second liens because they were too risky. Yes, the banksters are at fault for not weeding them out. Yes, the banksters are not the only ones at fault. It took two to tango.

    The lesson has been salutary for a nation that thought that credit was like pressing a button on the cold-drinks machine – automatic. Which is how a nation went binging on cheap interest rates. And that does not happen only in America.

    What happens only in America is dereliction in professional responsibilities of the lenders, because oversight authority was lacking. (See Truth In Lending Act, 1968 – why was it not being enforced? Because it made life more difficult for the purveyors of attractively cheap credit.) Which was the fault of which Federal entity?

    Some Americans were living beyond their means and they have paid the dear price for their folly.

    C’est la vie …

      1. Leviathan

        In many suburban communities there ARE no housing codes to speak of because rentals are largely a temporary stage of a house’s life. The long-term rental of single-family houses in such communities will be awkward. They may need to pass ordinances granting rights to tenants and obligations on landlords, which will be unpopular with the owner/voter majority. But this is not unique to bank-as-landlord schemes. PE and hedge fund bulk buyers will encounter the same problems.

      2. Virginia - DeadlyClear

        My first thought (and several times thereafter) – Fannie Mae foreclosing is damaging the Obama image …”Why is the government foreclosing on me when they know the banks have committed fraud! Why isn’t Obama doing something?!”

        I go back to my mantra, THE BANKS WROTE MORE LOANS THAN THEY CAN LEGALLY HOLD, as mortgages. The government (Obama & Congress) are afraid to strip the loans from the banks, because if the banks fail everyone will know their pension and retirement funds are gone.

        The only difference between the foreclosed homeowners and the pension beneficiaries is that the homeowners already know their retirement is gone.

    1. Donny Jeffries

      Chapter 13 strips the second. The wealthy use their 11 and 13 all the time to save everything they bought beyond their means. Of course the proles are designated exploitees and the cogs of the investment machine, they can’t be allowed to lower the principle on their primary residences. Or can they?
      Me sucer la bite!

    2. Kimmy Chang

      Banksters obliterated consumer protections, legislated to make fraud legal and own a legislator or 50. It’s ok to celebrate what Banks have gotten away with so far, no harm in that.
      But let’s review: Banks did not care who they lent too. It didn’t matter if the borrower paid anything back, they needed to use the victim to feed the machine, MERS forecloses, more fraud perhaps, then the house is back on the market for another mark. When things collapsed, Banks, GSEs ergo investors were rescued. So-called borrowers were not.
      Nobody buys the lie anymore, not any of the millions who were deliberately set up to fail, not former or current regulators, economists, law professors, et al any one who doesn’t have a vested interest in perserving the status quo of criminality.

    3. Joe Friday

      Lafayette: “Some Americans were living beyond their means and they have paid the dear price for their folly.

      C’est la vie…”

      Sais-tu combien de temps ta mère prend pour chier? Neuf mois!

      C’est la vie…

    4. rps

      “Some Americans were living beyond their means and they have paid the dear price for their folly.”

      Perhaps you are referring to the corps, investment houses, insurance firms, and banks that received bailouts? Or is it the revolving bankruptcy door of the Donald Trump’s?, or are we talking about the backdoor bailouts of the Blankenfein’s, Hank Greenberg’s and Buffett’s of the world who bellied up to the taxpayer trough?

      However, the drive-up McDonald dollar menu masses lose their over-priced falling down shacks, and to add to their ball and chain existence, they are forced to subsidize the parasites at the top of the dung heap. Tar and feathers served a moral purpose

      “When wealth and splendor, instead of fascinating the multitude, excite emotions of disgust; when, instead of drawing forth admiration, it is beheld as an insult upon wretchedness; when the ostentatious appearance it makes serves to call the right of it in question, the case of property becomes critical…”

    5. Darren Kenworthy

      The grifter/ mark relationship is a more apt analogy than marriage for the relationship of creditors to debtors during the housing bubble. Grifters play on emotional vulnerabilities in order to defraud. Even when the vulnerability is “greed” the mark is still a victim, and the grifter is still guilty of fraud.

  2. LucyLulu

    Your local bookie is now taking wagers on how much credit Bank of America will receive under the mortgage settlement for the deals.

    Pour les banquiers, c’est la bonne vie.

    1. ajax

      Interesting post about a very complex situation.
      I seem to remember someone heralding 2012 as a
      “year of lots of litigation for banks”, for example
      potentially by MBS, CDOs investors. Is that still
      in the cards? Banks might eventually realize that they ought
      to make compromises (maybe …) .

    2. DeadlyClear

      Obama and his pals have to figure some way to pump money into BofA to prop it up. Gods knows if the regulators seriously looked at it’s books it would be on the chopping block before the Democrat Convention could open it’s doors. Amazing the timing here… “Prop ’em up Barry … Carry ’em as long as you can. Don’t let them fail before we get to Charlotte – that would be another disaster…”

      Seriously, why is anybody still keeping money in these banks?

  3. jake chase

    It seems pretty obvious that BofA is doing this to avoid foreclosure snafus. Owners give up foreclosure rights and become tenants who can be turned out after two years with no embarrassing questions asked about who owns the mortgage note. Of course, the ultimate scam is directed at those buyers in bulk who will discover soon enough that housing is still 50% too high when priced in relation to the income of potential individual buyers, and that income is likely to continue shrinking as rents grind on and corporations find new ways to extract them. Meanwhile, the propaganda about growth continues apace. It’s all just magical thinking by executive types who believe they must be smart because they occupy those highly paid positions and know that, ‘we have to do something.’

    1. YankeeFrank

      Bingo. The selected properties will be ones with completely unprovable mortgage liens/notes. The bank gets the home outright and also get some rental income in the interim (until the market rebounds someday and they can sell). They will do nothing to upkeep the homes, and have a good chance the “renters” who used to own the home will continue to care for it. That’s much better than attempting to foreclose and possibly failing, and if they succeed only to have an unsellable property on their hands, then having to find someone to rent it to who will certainly not perform upkeep. I would expect if the pilot program works to their satisfaction they will start doing this on many properties with missing notes.

    2. DeadlyClear

      Let’s do the math… Why would the government take asset producing properties and give them to private industry to “rent”, use the asset on their books to collateralize, pledge, lease, etc. in their shadow banking schemes…AND profit from the rents? 100,000 homes (for example) at $1000 month = $100 million a month.

      No offense, but the states and the federal government need this money more than banks that committed massive fraud and destroyed our economy. When are we going to stop rewarding the crooks? Does Obama really think we are all idiots?

  4. Conscience of a Conservative

    This idea has merit. If the home owner has negative equity they are, in reality, effectively renting anyway. One problem with foreclosure is that the current owners stop maintaining the property and sometimes strip it further reducing market value. If offering the current owners the option of deed in lieue of foreclosure and the ability to rent back for a year or two, etc at a rate lower than what they were paying earlier it might be a way to ease them out. The question is are there buyers who would want to want such a “buy to let” property, or is BAC just trying to gain income and delay a sale until a time when there’s less foreclosure inventory out there. It should be in Bank America’s interest if they do become owner to make sure the property is maintained.

    The irony in all of this , is if this is the model for many delinquent properties going forward is that it risk turning the banks into giant REITS.

    1. I'm Slow

      “One problem with foreclosure is that the current owners stop maintaining the property” This is false, people continue to take care of the property, and the Banks are keenly aware of this, as they delay and do everything from rip off a few more payments, to add more charges to push the house forever out of reach. They then seize/credit bid when the time is right.

    2. Doug Terpstra

      Of course as Lily Tomlin would say, few of us are cynical enough. The deed is all important cornerstone of this lastest plot. Having the distressed homeowner sign it over gives BAC immediate ownership without any of the pesky fraud, forgery, and perjury issues. After teasing the victim into signing away any legal rights, BAC can simply dispatch marionette Sheriff Joe that same afternoon to put all of the Muppets earthly belongings curbside for one last rummage sale.

      All other elements of the scheme such as lease options and “…rents that the bank determines are at or below the current market price” are merely diversionary devil’s details.
      If Leaseoptionhomesaz.com is any indication of market rates, they’ll be charging at least double what would otherwise be dumped on the market. “rents are rising in many of the troubled residential markets while sales continue to stagnate.”

      BAC’s latest scam is clearly timed to coincide with Fannie’s post-settlement plan to fire-sale bulk foreclosures to vulture capitalists, after having bought them from the same predator-parasites at full-myth-value on behalf of taxpayers. Selling them at 25-cents on the dollar and renting them out to credit-damaged homedebtors is a cunning way to extract yet more rent, while at the same time preventing land and property from falling into the grubby hands of commoners at their true market value. It’s brilliant, Timmy, a brilliant way to run a plantation!

      “Fannie Mae Sparks Greatest Home Sales Rush of the Decade”

      http://www.worldpropertychannel.com/north-america-residential-news/fannie-mae-freddie-mac-warren-buffett-lewis-ranieri-wall-street-amherst-securities-group-paulson-co-colony-capital-llc-rialto-capital-management-llc-american-residential-properties-cnbc-bulk-sales-5429.php

  5. rjs

    How responsive will they be when a boiler fails or the roof develops a leak or a tree falls down in a storm and damages the house?

    former owners will end up doing their own repairs, just as they always have; home ownership is an entirely different mindset than renting and thats unlikely to change with a change in the paperwork

    1. DeadlyClear

      Wait a minute. That’s assuming that the bank will actually structure a rent deal. Remember HAMP? What a disaster that turned out to be. The banks drove people into default and then drove them crazy reproducing paperwork just to foreclose on them in the end… No HELP, No HAMP…

      Frankly, I can see them taking the deed in lieu and then saying, “sorry, you don’t qualify for the OBAMA RENTAL PROGRAM.” But, thanks sucker for your deed in lieu of litigation, it saved us $100k in court fights.

      Have we seen anything, from bailout details to HAMP programs where this administration or Congress drafted the rule book in advance… Like you MUST rent for 5 years… 10 years if there was a bankruptcy? No sense of consequence on any of their hair brain deals. If nothing is put in stone first we might as well drag their fraudulent fannies to court.

      And bottom-line, if you and they can afford to rent it why don’t they just restructure or give you a new mortgage? The homeowner didn’t collapse the economy or cheat the investors… The banks did!

  6. Nathanael

    This would have seemed like a good idea before we found out that Bank of America has no legal right whatsoever to a bunch of the homes it claims to be foreclosing on.

  7. Woodrow Wilson

    At this point, I’m amazed that these TBTF’s are not burning in cinders.

    Why would anyone is their right mind believe anything coming from these TBTF’s? I’m sure in the months to come, we’ll read on this very blog of how participants were robbed again in some form.

    “They escape the credit score damage” –

    If you’re already broke and/or jobless, file CH 7 already, if you’re treading water, CH 13 and get it over already and give a TBTF the middle finger in the process. Learn from your mistakes, swallow your pride, and don’t let your own hubris get the best of you next round. Cash and carry, fuck The Banking Cartel and the CONgress that enables these criminal enterprises known as TBTF’s.

    “But given their track record, I wouldn’t bet on them pulling it off in the way the great unwashed public hopes they will.” –

    Exactly.

  8. JefeMT

    Out of the pan and into the fire… can you imagine being a tenant of the guys who abused/ mis-applied funds in servicing? I can’t imagine the land-lording will go well for B of A. Headache swap. Sticky tar-baby. Reaping what they’ve sowed. No free lunch. The whole nine balls of wax

    Have a great weekend!

  9. F. Beard

    They escape the credit score damage, stress and indignity of the foreclosure process and save moving costs. Yves Smith [bold added]

    “Credit” is one of the greatest cons in history – we are lent our own (and our neighbors’) stolen purchasing power. The truth is that NO ONE is credit worthy.

    1. Starla Bountiful

      “They escape the credit score damage, stress and indignity of the foreclosure process and save moving costs” – nice list of assumptions. In many cases, the only “damage” is with one so-called creditor. Indignity is having your pants fail in public, not paying a TBTF Bank is a source of pride. The foreclosure process featuring debt collectors is laughable too, this is when Banks become dishonest, aggressive little trolls. (Revealing their true selves.) Moving costs, oh boy, those U-Haul payments are killer. Travel light kids, no need for trappings and crap bought on easy credit.

    2. Leviathan

      This was a misleading statement from Timaroas, who is usually pretty accurate. You do not “escape” anything by taking a deed-in-lieu. Yes, your credit score bounces back a bit quicker than if you have a full-blown foreclosure, but the GSEs don’t give a toss whether you did a short sale, dil, or got foreclosed on. Two years is two years for all of you (pthhh!). The worst part of the deal is that if you did a ch 11 or 13 but have “extenuating circumstances” like losing a job, etc., you can have your time in the box reduced from 7 to 2 years! Talk about a perverse incentive to run up debt like mad, do a bk, then claim ext. circ.! If I had no soul I would have done it and kept my house for 5 extra years.

      The one way in which the dil to rent path IS better is that the former owner can ride out the “exile” period in their own home. That is a potentially huge plus. It seems to me that the banks are trying to keep potential loan-buyers in a state of suspended animation/life support until they can trade down to a new home. It’s whatever is best for THEM, after all, and our govt says nothing.

      1. St Jermaine

        “I would take 5 years if I had no soul” That’s some seriously deluded self-immolation, and for the very wrong reasons. The courthouse is for rich people? Like housing?

  10. PL

    Who is the Landlord of such properties? Who will the homeowner-turned-renter sign a lease with? Bank of America isn’t the owner of the promissory note, it’s the trust comprised of mortgage backed securities. If the promissory note is lost, then how does Bank of America know who owns it and, therefore, who is the Lessor?

  11. PH

    You are both overstating the perceived “problems” associated with managing a portfolio of such units, and understating the potential returns.

    In many markets, the maintenance obligations fall to the tenant. Grab a sample set of local real estate board form leases and you’ll find this to be the case. Moreover, while these same form leases do place the burden of capital repairs on the landlord’s side (as is the case with multi-family properties), this is an identifiable risk that can be assessed just as it would be by a skilled operator acquiring larger-scale multi-family properties. Falling trees are non-discriminatory – they will crush the roof of a single-family home and a two or three story garden-style apartment building with equal vigor. The previous run of the “for sale” cycle has created legions of well-qualified providers of ownership related services, from inspectors to repair specialists, many of whom are thrilled to raise the tenor of their operations by contracting locally and regionally on a bulk basis with professional owners. At the risk of introducing cliche, don’t overlook how frictionless the management oversight of this type of service effort has become in this age of pervasive connectivity.

    As to your claim that adequate returns cannot not be found in this approach, our existing portfolio of single-family rental properties in a major metro market is performing otherwise. In fact, current yields exceed the operating yields on muti-family properties by 250 bp or more (unleveraged) and demand, as measured by vacancy rate and “time to let,” is nearly 5X greater. Modeling only a modest level of price appreciation over a relatively short holding period, say 10% over 3 to 5 years (In other words, “bumping along the bottom” for a few years), this asset class will perform extremely well on a risk adjusted basis. Introducing relatively low leverage at the portfolio level only enhances the opportunity.

    Granted, deploying large amounts of capital is still challenging (hence Mr. Bufftet’s recent “I would if I could” comment), but the buy side of this market is evolving quickly – that’s the real test FNMA and B of A are performing: consolidating impaired collateral into a more liquid format is a tacit acknowledgement that institutional capital is now finding its way into the void left by the collapse of the previous housing finance regime. This is a liquidity arbitrage that is likely to prove very rewarding. Liquidity at the individual buyer level remains scarce. Liquidity at the “private equity” level, in all it’s various forms, is both abundant and opportunistic.

    1. Leviathan

      “Liquidity at the ‘private equity’ level, in all it’s [sic] various forms, is both abundant and opportunistic.”

      Brutally honest, that last bit. At the end of the day, the access to capital is dictated by a few people in Washington, people who know which side their toast is buttered on.

    2. Yves Smith Post author

      PH,

      The idea that this sort of management is “frictionless” is belied by the widely reported problems that banks have in securing and maintaining foreclosed properties. Managing property is high touch, and I don’t see this scaling well. I also see a real possibility of localities imposing local standards in response to bulk sales and concerns re the caliber of PE oversight that undermine the status quo of being able to rent without being responsible for maintenance in many markets.

    3. Doug Terpstra

      PH, As Yves notes, your current “frictionless management” can become gooey very quickly when the blood-flow from stones turns into a trickle and the current rent bubble land-rush pops and inevitably follows RE values on a time-delayed graph.

      Also, your perception of being able to put all maintenance responsibility on plantation tenants only goes so far. Beyond neglect, a whole lot can go wrong in a hurry from a disgruntled or distressed tenant. And even in regressive red states like Arizona, there’s a lot of legal wiggle room for a put-upon tenant who might decide to get uppity:

      “The landlord and tenant of a single family residence
      may agree in writing, supported by adequate
      consideration
      , that the tenant perform the landlord’s
      duties specified in subsection A, paragraphs 5 and 6 of
      this section, and also specified repairs, maintenance
      tasks, alterations and remodeling, but only if the
      transaction is entered into in good faith, not for the
      purpose of evading the obligations of the landlord and
      the work is not necessary to cure noncompliance with
      subsection A, paragraphs 1 and 2 of this section.” (Subsection A, BTW, is quite comprehensive and affords tenants considerable leverage, including damages for untimely compliance)

  12. Leviathan

    One last observation. The example given in the article is of a “market rent” that is about 40% less than the current mortgage payment. How does that work? In my neck of the woods property taxes can run as high as 50-100% of the mortgage payment (welcome to Lake County, IL!). That makes “market rents” outrageously high relative to local wages.

    It sounds to me as though banks and other institutional landlords might reset “market rates” a good deal lower than at present, which is great, but also screws over ANY current or potential mom and pop landlord. It would also make it impossible for underwater homeowners who need to move to rent out their homes for anything that would come close to covering their expenses. That option would close, and more people would just mail in the keys. The TBTF and big money investors win again.

  13. lambert strether

    From the Department of What Could Go Wrong? I’m picturing a scenario like this:

    The boiler goes out and the pipes burst.

    1. I call BoA, because they’re the landlord.

    2. BoA gives me their list of Approved Vendors, and I pick the boiler guy and the plumber guy off the list.

    3. The colorfully uniformed representative from A-1 Trustworthy Boiler arrives, unclogs the fuel line, and tells me that Honest American Oil, also a BoA Approved Vendor, must have had sediment in their product, or some such, and that caused the line to clog. They hand me a slip, which I forward on to BoA with the invoice.

    4. The jumpsuited and badged representative from Best Plumbers Ever arrives, replaces the pipes, hands me a slip saying that yes, the pipes burst because the boiler failed, which I forward on to BoA with the invoice.

    Time passes….

    5. Checking my statement from BoA — where I am required to do my banking as a condition of signing the lease — I notice that the rent, which is automatically and electronically removed from my account, has mysteriously increased by $200, and that this has caused five other checks to bounce, costing an additional $125.

    6. I prepare an armchair and food for the siege and call BoA Customer Service, Properties Division, Homes, Other.

    Time passes….

    7. As it turns out, I’m now on the hook, under BoA’s Rental Property Enhancement Program, for a new boiler and new plumbing, costing $25K, to be paid in monthly installments of $200… “Congratulations, sir! We hope you are enjoying your new boiler!” ….” No record of any repair, no….” “… No, no slips…” “… No, it’s not in the computer…” ” … Can you send us a copy? …” “… I am the supervisor, sir. We are all supervisors. ….”

    And as I slog through the conversation, I hear first a drip, then another drip, then a pitter patter of water coming through the ceiling above me.

    I return to step 1, and the process repeats as before.

    * * *

    As I find out later, the guy from Best Plumbers Ever had connected a plastic female threaded connector to a metal male connector, which broke. As many, many joints did, over the next few days. No doubt the revenues from BoA’s plumbing service providers had been securitized…

  14. Brooklin Bridge

    Rest assured, if there is a way for banks to further screw things up, they will find it much faster than PH struts his particular form of jive which is already faster than sewage finds it’s level. And this looks like a great scheme for additional plunder. Screw over the current rental market until they generate yet another wave of forclosures on small rental owners.

    It’s highly unlikely a Republican president could have ever done so much for so few nor caused such suffering for so many. Even Alberto Gonzales would blush at what BOA gets away with, while Obama thinks they’re clever (and his DOJ thinks what ever they are told to). On the bright side, BOA has the tax payer to bail them out each and every time no matter what they do.

    Note, one possible motive for this move, in addition to the pillaging of a market, is the ability to bribe the “owner” not to squawk too much, or look too deeply into his or her rights when their house is subject to a gray or outright illegal foreclosure process. It’s easier to ease people into serfdom over a couple of years than brutally all at once like that.

    More bonuses please!

    1. lambert strether

      Since the banks are run by criminal fraudsters, we should expect outcomes optimized for that sort of ownership from the program. If you thought slumlords were bad….

  15. MB

    BofA is saying “go gently into the night”….and we’ll sell you off as a well managed unit to, um, institutional investors.

    Why they haven’t named this “The POTTERVILLE Play” is beyond me. Can I have a copyright on that name please?

    It’s a Wonderful Life, ain’t it?

  16. izziets

    The reason for this is simple. Its much easier and quicker to evict a tenant for non-payment than it is to foreclose in New York, which on some loans is near impossible. Plus, the homeowner signs a deed over to BoA, so no more chain of title issues. Win/win for BoA.

  17. Rehabber

    As a small time landlord, I suspect that institutional involvement, either via banks, gov’t, or hedge funds, will end badly. Small rental property units (say less than 70 doors) do not aggregate to scale economies. That’s why residential investment has traditionally steered to large apt complexes, where the scale of having onsite management and maintenace makes sense. These banks could not organize an internal underwriting dept for one-off transactions- how are they going to manage property on a day to day basis?

    1. Lambert Strether

      They can organize for fraud just fine. That’s not the same as being a good landlord, or even a halfway decent one.

      So whatever they do, it will be optimized for what they do best: Fraud.

      Let’s not make the assumption that this program has anything to do with managing rental properties as a landlord would understand the term.

  18. Mac

    If there is uncertainty in the title/deed of some of these properties how does one sign it over to the Bank. Does another shaky deal make it all legal?

    1. izziets

      The title issue comes into play when a lender forecloses on a homeowner illegally and then tries to sell to a third party. See the Ibanez and Bevalaqua cases. In that case the third party could find himself owning nothing, and the homeowner may still hold title. If, on the other hand, the homeowner signs a deed over, then he no longer has a claim on title. Whatever title he had, now belongs to the entity or person that he signed the deed over to. So if you have a lender that is sloppy about keeping the documentation (or ever getting it in the first place) that shows it owns the loan, what better way to rectify this than with a deed from the homeowner?

        1. izziets

          BoA issues a Release of Mortgage. The title company makes a business decision about whether or not they’ll issue title insurance on sale to the third party. If they do alot of business with BoA (which of course they all do), they will issue a title policy to the new owner. Since the homeowner signed the deed over to BoA, the title insurer doesn’t have to worry about him coming out of the woodwork to claim ownership, as they might if he were faultily foreclosed upon.

  19. Donald Trumpet

    Been looking at foreclosures lately, many of them BofA owned. Seems everything electrical has been looted, not to mention the need for paint, flooring and window covering. One place the rooftop chiller was removed leaving gaping hole and it’s been raining in the house the past year and a half. Someone should tell BofA! Did they have bankers living in these places?

    Also evidence of black mold and termites in some places. Also, real estate agents strongly advise that the title search is still necessary to check for back tax liens and any other liens on the property.

    But we’ll have to see how the bulk sale to hedge funds or private equity funds works out. Surely they will renovate for the new renters…but what happens when the poly butyl plumbing bursts, gets your chinese drywall wet and the place stinks like rotten egg gas and slowly dissolves your lungs? Call your hedge fund manager? Your Carlyle property rep? And while you have them on the line you may need to inform them that the neighbor’s crack house exploded into flames last week and you were wonding who is supposed to carry the fire insurance on your place?

    Well, you know my answer to all this. YOU ARE ALL FIRED!

  20. Small.Business.Guy.1

    First, many municipalities (few Counties at this point) are now starting to put in place rental inspections (move in/move out).

    Many municipalities have now put tracking programs in place for tracking forclosures, lis pendens, etc., but it’s still an uneven process. And dealing (to date) with banks and financial institutions on properties located within their jurisdictions has not been easy.

    I’d suggest a cautionary role model of HUD with Section 8 housing, run by local housing authorities. They use their own quality control inspectors, with yearly inspections of rental units, as well as move in/move out inspections. Then they have a separate HQS (Housing Quality Standards) inspection (normally an external entity, public or private) not affiliated with the Housing Authority.

    And there are still problems, and it is expensive (it is better, though)….

  21. Don

    One thing that seems off…

    So, in a lot of cases if rental prices are low doesn’t that likely mean not just a borrower in default, but an underwater borrower? Which leads me to a conundrum. A borrower can’t afford the current mortgage, but can afford to rent at a rent lower than the payment. The bank leases for a year or two. Prices don’t rise much and the bank still ends up selling the property to an investor at maybe 60% of the original loan value. But, that borrower (being able to afford the rent) might very well be able to afford payment at 70% of loan value. So, how is this better than a principle modification for anyone? Maybe the perverse incentives created by servicers making money on delinquent properties and banks trying to avoid recording the actual value of loan assets and the second lien issue make the renting look better to the bank.

    But, overall if someone is delinquent and underwater and can make payments on a loan at current market rates at 75% of the original loan and the bank would only get 70% in a foreclosure sale, why not take the larger amount of principle, and avoid any other expenses associated with foreclosure?

  22. Bridget

    Well, failing this, there’s always the 40 acres and a Mule option. Or maybe Homestead 2012.

  23. Senka

    Who is standing in the way of the People’s Hero and why?

    “The fundamental thing about our legal system is, you don’t commit fraud, and yet it’s happening every single day,” O’Brien charges. “These banks and MERS have wreaked havoc with the land recordation system. They didn’t want you to know how many times they sold your mortgage.”
    O’Brien estimates that his Salem registry has lost $44 million in recording fees to MERS.”
    http://boston67.blog.com/peoples-hero/

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