by Calculated Risk on 3/22/2012 11:30:00 PM

From Nick Timiraos at the WSJ: Alternative to Foreclosure Tested

Bank of America Corp. BAC -2.24% is launching a pilot program that will allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.

... the "Mortgage to Lease" program is small—the bank began sending letters Thursday offering leases to 1,000 homeowners in Arizona, Nevada and New York

...Borrowers would agree to a what is known as a "deed-in-lieu" of foreclosure, where they essentially sign over ownership of the property to the lender. ... In exchange, former owners would be offered one-year leases with options to renew the leases in each of the following two years at rents that the bank determines are at or below the current market price.

Dean Baker proposed something like this a few years ago.

Also - and Timiraos didn't mention this - in the recent white paper on housing, the Fed proposed to relax the rules on how banks can manage rented REOs. From the Fed white paper:

In light of the current unusually difficult circumstances in many housing markets across the nation, the Federal Reserve is contemplating issuing guidance to banking organizations and examiners to clarify supervisory expectations regarding rental of residential REO properties by such organizations while such circumstances continue (and within relevant federal and statutory and regulatory limits). If finalized and adopted, such guidance would explain how rental of a residential REO property within applicable holding-period time limits could meet the supervisory expectation for ongoing good faith efforts to sell that property. Relatedly, if a successful model is developed for the GSEs to transition REO properties to the rental market, banks may wish to participate in such a program or adopt some of its features.