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Why BofA's latest plan is drawing little protest

Doesn’t it feel like Bank of America has finally broken us?

Plagued with lawsuits and settlements; uproars over fee hikes; and a recent scathing article in Rolling Stone calling it “moronic and corrupt," you would think the nation’s biggest bank would be put under a synchrotron, the world’s biggest microscope, by the mere mention of a new approach or plan to help its bottom line or borrowers.

But Friday, when the bank announced an unprecedented plan to become a national landlord to thousands of people who couldn’t afford to pay their mortgages, we heard hardly a whisper of scrutiny.

“I am not a big fan of the way banks in general and BofA in particular have handled the mess they had a huge part in creating,” said George Gombossy, editor of Connecticut Watchdog, a consumer advocacy website, who’s usually pretty vocal about banking practices. “But after saying that,” he added, “I think we ought to let this experiment play out.”

The bank's plan is basically a flip on the rent-to-buy model that has given countless consumers the means to own their own homes. In Bank of America’s spin on the concept, which it aptly calls “mortgage to lease,” you end up going from homeowner to renter, or basically economically backward. I say backward not because I’m trying to fault the bank’s big idea but because it’s backward based the natural progression toward economic independence our parents taught us, right?

Some banking experts think it’s better than nothing for consumers and for the bank.

“When you’re dealing with the sheer number of delinquent and distressed mortgages we have in this country it leaves a lot of room to try a few things and see what works,” said Greg McBride, senior financial analyst for Bankrate.com.

And, McBride pointed out, “It's important to stress this is just a test, and a small-scale one at that.”

Bank of America said fewer than 1,000 homeowners will be invited to take part in the pilot plan, in a limited number of markets including Arizona, Nevada and New York.

“Our priority is designing a solution that helps our customer,” Ron Sturzenegger, the legacy asset servicing executive at Bank of America, said in a statement. “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.”

It could also help the bank’s bottom line, providing the institution with a new source of revenue as it looks to ultimately sell the properties. 

But will it be a panacea for struggling homeowners? The devil will be in the details, according to a blog post by Yves Smith, founder of financial website Naked Capitalism, about the mortgage-to-lease proposal. “Even if the program turns out to be a positive experience for borrowers and the bank, it is not clear that it is a magic bullet for the foreclosure mess,” she surmised.

And, she continued, “Anyone who has had a bad or lazy landlord can tell you what an awful experience it is. Banks have done a terrible job of securing and maintaining foreclosed properties. How responsive will they be when a boiler fails or the roof develops a leak or a tree falls down in a storm and damages the house?”

Bank of American’s proposal is being hailed by many, including bank executives, as a compassionate move for homeowners who can no longer pay their mortgages and now will be able to stay in their homes. But it is reminiscent of that scene from “It’s a Wonderful Life” when Mr. Potter tells George Bailey that banks shouldn’t be funding middle class dreams of homeownership because it gets you “a discontented, lazy rabble, instead of a thrifty working class.”