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D. Sidney Potter Headshot

More Smoke and Mirrors From the Bank of America Pilot Program

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For my inaugural posting for the formidable Huffington Post, let me get this out there for the record. Firstly, I am a card-carry registered Independent and proud of it. In terms of politically leanings, I adhere to the 80/20 rule. What is that you may ask? As a former commercial real estate broker, all sales guys will know what I'm talking about. As for which way I lean (Is it to the Left of Right?), follow my musings on the current state of economic despair of this great country of ours and it should be somewhat evident. As a clue, if I were a true rhino I would likely be a donkey!

First up to bat for critical analysis, is Bank of America's new pilot program, titled "Mortgage to Lease." Rolled out last week with splashy headlines, the program is structured to assist its mortgage customers that are in current default on their loans. Sounds well-intentioned, right? (Not!) When you read the fine print, its got more holes than a piece of rotting Swiss cheese. Don't believe me. Per the Bank of America website, note the following:

· Have loans owned by Bank of America.
· Are delinquent for more than 60 days.
· Have exhausted modification solutions or have not responded to alternatives to foreclosure, including short sale and deed-in-lieu.
· Have high loan balances in relation to their current property value.
· Face considerable risk of ultimate foreclosure.
· Have no junior liens.
· Are still occupying the home.
· Have adequate income to make an affordable rent payment.

And I almost forgot, the program is limited to 1,000 customers, and to the states of Arizona, Nevada (two of my former stomping grounds as a new tract home investor), and the great state of New York. In addition, the 1,000 customers have to be "invited." Which I must admit, I'm not certain what that means.

"This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support," Ron Sturzenegger, legacy asset servicing executive of Bank of America said in a statement. "This program may have the potential to further round out the broad set of solutions we offer our customers in need of assistance."

Translated (and in code): We're doing this program to stave off criticisms that we really don't care for our customers when in fact we don't... excuse me... I mean we do care.

In all fairness to the banks, wherein most that work for them are taxpaying, God-fearing Americans that simply want to put food on their table, a pilot program of this non-magnitude is at least a start. Albeit it's a 'day late and a dollar short' -- figuratively and literally speaking. Kinda like offering a terminally ill patient medical assistance while their being filled with embalming fluid on a cold metal slab. It is however freakishly similar in scope (or lack thereof), of other "pilot programs" that are meant to quell criticism that the banks are not doing enough to assist their customers out of this scorched earth environment.

The fact is, they aren't, and this program isn't helping. Three and a half years into this mess -- or four and a half, depending when you start the clock as the " beginning of the end" -- many banks are still resistance to "change." Why are most banks resistant? Because it's difficult, primarily. It's not that complicated. Making a cultural and organizational change to a cataclysmic financial meltdown is fairly difficult. Remember, at 35,000 feet it takes a 747 jumbo jet five miles to make a u-turn.

Imagine a bank culture steeped in decades of entrenched resistance to anything different then what their use to. And this just doesn't go for banks; it goes for the butcher, baker, and candlestick maker. Defining new paradigms is difficult - but not forgivable. As one example, and in 2008 when the banks started to realize that the rules would have to change and that they might have to play the game differently - in what I like to call the 1st Inning in the Game of Darkness, some mid-sized commercial banks in Los Angeles started to institute partial loan forgiveness and interest rate reductions for nearly all its loan. I repeat, for nearly all its loans. Even though the market capitalization rate for small to mid-size banks, community thrifts and credit unions are substantially different - kinda like a single prop Cessna idled next to a 747 Jumbo jet, they are still from the same aeronautical tribe - and in this case, similar banking tribes. The distinction between the variant response between large banks and their more nimble sized counterparts - is the culture stupid. In short, it all comes down to culture, organizational bandwidth and accountability to shareholders.

Banks too big to fail are so fortified with bureaucratic layers of Brooks Brothers suits and "yes men" that expecting a reasonable degree of change is a Herculean task. Many of the changes bandied about over the past three to four years have been promulgated through the Home Affordable Act, which gave birth (some say prematurely), to the "alphabet soup" programs, such as HAMP, HARP, HAFA, etc -- some of these programs I can proudly say I was a consultant on.

America has witnessed the failure of these alpha programs as a result of the alpha male -- and their inherent resistance to change. Try talking about the reasonableness of a "cram down" (aka principal loan reduction), to a banking operations manager, and you would think you were taking their first-born. And believe me, I've had these conversations at operation sites across the country. It's not a popular topic. Nor are "pilot programs" for consumer advocates, who in short view there negligible efforts of the banking industry, as another attempt to disguise itself again in sheep's clothing.