Foreclosures and short sales are one of the biggest issues keeping the housing market from making a quick recovery and it's far from over. As 2012 began there were well over 3 million properties in foreclosure with nearly half of them not yet listed on the market. The foreclosure dam is about to break.
To help combat this foreclosure crisis Bank of America announced last month that they were beginning a new pilot program called "Mortgage to Lease" that will help aid their customers facing foreclosure by allowing them to stay in their homes.
Once a homeowner is accepted into this pilot program the troubled homeowner, who has a mortgage with Bank of America, turns their deed over to the bank. At that point they will go from homeowner to renter and basically become tenants of Bank of America.
Now, the Federal Reserve, seeing the advantages of Bank of Americas' program, has just released some guidelines that could encourage other financial institutions to also convert lender-owned foreclosed homes into rentals. By making these changes, banks can shrink their number of "substandard assets" putting banks in a better and healthier financial situation.
Furthermore, the Fed also stated that lenders may receive Community Reinvestment Act credit that provides housing to low to moderate-income people by converting foreclosed homes into rentals.
By implementing programs such as BofA's, they could help stabilize the housing market by eliminating a gluttony of foreclosures from the available inventory and at the same time could increase home prices.