Bank of America’s foreclosure alternative isn’t new — Fannie Mae has been doing it for years with lackluster interest from borrowers.

FlickrFORTUNE – To help struggling homeowners, Bank of America recently launched a test initiative that will give some a chance to rent the very homes they risk losing.

Last week, the Charlotte, NC based bank began sending letters accompanied with leases to 1,000 homeowners in Arizona, Nevada and New York.

Homeowners can avoid all sorts of headaches: Damaged credit scores; pricey moving costs; the hassles of transferring the little ones to a new school.

As The Wall Street Journal noted, the robo signing debacle that brought attention to unlawful foreclosures has made the process of redeeming properties tougher.

And in terms of the broader economy, it could help stabilize prices by keeping properties off the already oversupplied for sale market.

But if BofA’s “Mortgage to Lease” program is going to take off, the bank might have to work harder to attract financially strapped borrowers.

China’s benchmark money market raterose the most in more than a month on speculation banks areboosting capital to meet regulatory requirements as the quarter end approaches.

MORE: The multibillion dollar Wall Street scandal no one is talking aboutThat could very well be.

To qualify, borrowers must prove that they can take on monthly rent payments, which would be offered at the market rate.

In regular times, that might not be such a biggie – except the program targets homeowners in distress, who have either been tardy on mortgage payments or have stopped making payments altogether.

Eligibility for the programs includes a BofA loan, and the candidate must be behind payments by at least 60 days and must be ‘underwater’ meaning that the mortgages on their home is worth more than the current value of the property.

But since the onslaught of the financial crisis, the face of defaults has vastly changed in the sense that traditionally safe borrowers began falling behind on their payments.

Whereas nonprime borrowers accounted for about 65% of foreclosure starts in 2006, prime borrowers have made up the bulk of all new foreclosure starts since 2009, according to a report by the Federal Reserve Bank of New York.

And given that statistics show more Americans have been doubling up with others instead of finding their own places to call home, it’s hard not to wonder if distressed owners could actually afford the monthly rent.

Compared with Fannie’s program, BofA’s is somewhat more flexible in that it’s open to offering leases at or below the market rate.

A program overwhelmingly based on rentals at a discount may or may not work for the bank financially.

MORE: The one number to watch for a housing recoveryStill, BofA’s effort falls in line with the increasingly popular idea that rentals are an answer to the troubled housing market.

This comes at a time when the rental market has become one of the few bright spots in an otherwise broken real estate market.

Last month, the federal government announced a test program to sell off part of its inventory of foreclosures to investors as long as they promise to rent out the properties for a certain number of years.

The Federal Housing Finance Agency, which oversees Fannie Mae and sister firm Freddie Mac, is soliciting investors to sell off 2,490 properties – the bulk of which are in Atlanta, GA, Southeast Florida, the Los Angeles and Riverside areas of California and Phoenix, AZ.

Aside from Las Vegas and parts of California, there aren’t very many other places with high foreclosure rates and a robust rental market, says Jed Kolko, chief economist at Trulia, an online real estate site.

Much of the overbuilding during the housing boom generally took place in suburbs and further out in rural areas, Kolko adds.

However, the demand for rentals is occurring mostly within cities and urban areas.

After all, many economists and policymakers believe that debt forgiveness is the bigger answer.

The day after BofA made its “Mortgage to Lease” announcement, National Public Radio and ProPublica revealed the findings of a yet to be released study by Freddie and Fannie, which showed that reducing the amount homeowners owe on their mortgages would not only help borrowers but would also save the mortgage giants money.

Of course, the FHFA has adamantly opposed the idea of reducing principles as opponents argue it would only encourage moral hazard.

Depending how seriously Congress takes the study, BofA and other lenders might put hopes in the rental market in the backburner.

Claire Cain is a business journalist based in Brisbane, Australia. Claire has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Claire spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.