What If You Could Walk Away From Your Mortgage, But Not Your House???

Earlier this year the Federal Housing Finance Agency (FHFA), the regulator and conservator of Fannie Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks, asked the private market for input on how to handle the majority of their current and future foreclosures.  If you want to know how many foreclosures are in the pipeline, it’ll be enough for another 6 Years and 9 Months at the current foreclosure pace.

The FHFA received over 4,000 individual recommendations from the private sector on how to handle the foreclosures.  The most popular recommendation was the conversion of the foreclosures into rental properties.  There is still a lot more research to be done before Fannie Mae and Freddie Mac converts their foreclosures into rentals, such as:

• Will an investor purchase the foreclosed property and be required to hold onto it as a rental?
• Will Fannie Mae and Freddie Mac rent the property directly to the public?
• Will real estate agents be used in the whole process?
• Will property managers be hired by Fannie and Freddie?  Or will the private sector be hired to handle the management part?
• Will Fannie and Freddie get involved with shared-profit with investors?

But despite the questions that still need answering, a pilot program is expected to begin in Spring of 2012.  So the big question recently has been, will the big banks follow suit?

Enter Bank of America…

It was reported Friday by Housing Wire that Bank of America is looking into creating a similar program of converting their foreclosures into rental properties.  The idea and the program by Bank of America is still very early, but Ron Sturzenegger, who leads Bank of America’s Legacy Asset Servicing Division, stated “We are talking with investors that would come in and buy these houses and would lease them back to who would now be the now tenant.”

The idea of the BofA program would try to capture delinquent loans before the foreclosure sale, encourage the seller to do a short sale (if all other alternatives fail) and during the short sale the property would be sold to an investor who agrees to lease the property back to the former owner.

And rumor on the street is that a few other big banks are considering this option.  It’ll all depend on the decision of the FHFA with Fannie and Freddie.