Bank of America Faces

Hurdles in Rentals

By Nin-Hai Tseng, Writer March 26, 2012: 10:23 AM ET

Bank of America's foreclosure alternative isn't new -- Fannie Mae has been doing it for years with lackluster interest from borrowers.

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FORTUNE – To help struggling homeowners, Bank of America recently launched a test initiative that will give some a chance to rent the very homes they risk losing. Last week, the Charlotte, NC-based bank began sending letters accompanied with leases to 1,000 homeowners in Arizona, Nevada and New York.

The move isn't anything other lenders haven't tried, but it's clearly a welcome alternative to foreclosure. Homeowners can avoid all sorts of headaches: Damaged credit scores; pricey moving costs; the hassles of transferring the little ones to a new school.

It also works out for BofA (BAC). As The Wall Street Journal noted, the robo-signing debacle that brought attention to unlawful foreclosures has made the process of redeeming properties tougher. The program might also save the bank from potentially big losses. And in terms of the broader economy, it could help stabilize prices by keeping properties off the already oversupplied for-sale market.

But if BofA's "Mortgage to Lease" program is going to take off, the bank might have to work harder to attract financially strapped borrowers. In 2009, mortgage giant Fannie Mae rolled out a similar program. It hasn't been widely used, and from that, we can say that it hasn't been very successful. A spokesman for Fannie says it's hard to say why, but some analysts have said banks simply didn't market the program enough.  Read More >  

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