Bank of America said Thursday that it would offer a small number of customers facing foreclosure the option to remain in their homes and rent the property instead. The program highlights how investors are increasingly interested in becoming landlords on troubled properties. Under the terms of the pilot program, which will be offered initially to about 1,000 consumers only in New York, Nevada and Arizona, homeowners will give up the title to their property in exchange for bank forgiveness of their mortgage debt. They would then be able to rent the property for up to three years. The rent payments would be less than the monthly mortgage payment and be set at or below market rates, according to bank officials. 
At first, Bank of America would retain ownership of the properties before selling them to outside investors. If the pilot program, known as Mortgage to Lease, is successful, the bank could expand it. A wide variety of institutional investors, including some large private equity firms, are weighing potential deals in the beaten-down housing market. Bank of America's move could offer up potential properties for investors who are looking for opportunities.
For consumers, however, the window is small. Bank of America will not be seeking applicants or taking volunteers for the pilot program; instead, it will select and invite about 1,000 customers to participate. The bank has already started contacting potential participants. 
"There isn't much of a question about investor interest," said Dan Frahm, a spokesman for Bank of America. "What we're testing for is customer interest." In order to qualify, consumers must hold mortgages that are owned by Bank of America, have been delinquent for more than 60 days, still live in the home and have exhausted other options. Homeowners whose mortgages are serviced by Bank of America but owned by other investors, like Fannie Mae or Freddie Mac, would not be eligible for the pilot program. "When homeowners are struggling to make payments, owe more on their mortgage than their home is worth and face certain foreclosure, one of their greatest anxieties is the transition process they face in moving from their home," Ron Sturzenegger, Legacy Asset Servicing executive at Bank of America, said in a statement. He continued: "This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support. This program may have the potential to further round out the broad set of solutions we offer our customers in need of assistance." "Our priority is designing a solution that helps our customer," Mr. Sturzenegger added. "If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market."
Many more properties will soon be available to investors. Fannie Mae, one of the government-controlled enterprises that dominate the mortgage market, plans to auction off 2,500 foreclosed homes next month and much broader sales are expected soon. While the majority of the nine million mortgages serviced by Bank of America are held by other investors like Fannie, Bank of America owns about one million of them outright. It is from that pool that the leasing program would draw properties, if it does indeed expand in the future. Like other big banks, Bank of America has been suffering from the fallout of the housing market's collapse. In 2008, it acquired Countrywide, and the losses from that purchase have already surpassed $30 billion.
