Posted on Thursday, February 11, 2010
Citigroup Inc. plans to let homeowners on the verge of foreclosure stay in their homes for six months - if they turn over the deed to their property.
Citi said Thursday it is launching the pilot program, dubbed "Foreclosure Alternatives," this week in Texas, Florida, Illinois, Michigan, New Jersey and Ohio. Initially, about 1,000 homeowners are expected to participate. Citi may expand the program nationwide.
In a normal foreclosure, a lender assumes legal control of the property and evicts the homeowner. But Citi's program, like other "deed in lieu of foreclosure" efforts, allows the homeowner to avoid a completed foreclosure. While the owner must still leave the home after six months, the program results in a less severe hit to the borrower's credit score.
The policy is an attempt to deal with what lenders see as a growing phenomenon: borrowers who choose to default on their mortgages. Close to one in every three U.S. homeowners owe more on their mortgages than their homes are worth, according to Moody's Economy.com.
Many housing analysts say these borrowers - particularly those who owe at least 20 percent more than their home's current value - are choosing to walk away because they see little chance that home prices will come back.
Also, many states have lengthened the time it takes to complete a foreclosure, making the process more time-consuming and expensive for the lending industry.
"Why should we all go through the foreclosure process and evict people?" said Sanjiv Das, Citi's top mortgage executive. Avoiding foreclosure, Das said, is "less painful for our borrowers as well as for us."
Borrowers in Citi's program will still need to pay their utility bills. But Citi will pay at least $1,000 in relocation costs and will consider helping out with other expenses. Citi also plans to provide relocation counseling.
The program is intended to help borrowers who don't qualify for a mortgage modification or a short sale - one in which the lender agrees to sell a home for less than the total mortgage amount.
Citi's policy is similar to one announced in November by Fannie Mae, the government-controlled mortgage finance company. Fannie is allowing homeowners to hand back the deed to their properties, then rent them back at market rates - AP
Now for my thoughts;
In most cases the cost to foreclose, repair damage done by an angry borrower, carry and empty property and resell it definitiely far exceeds the cost to let the existing owner stay put for 6 month. So this is a winenr for the bank.
But the benefits of this progrma to borrowers may be questionable. Yes if the program is executed well it will help owners avoid the cost and stress of foreclosure. But most are not paying their mortgage while they're in foreclosure and get to stay put for far more than 6 months, esepcailly as states adopt mandatory foreclosure mediation which is slowing up the process. For many it may come down to agreeing to get 6 monhts free rent or taking your chances and probably getting far more. Many will choose the later.
I assume this program will only apply to primary residences. In other words, landlords cant sign over the deed and enable their tenants to stay 6 months?
And yes it does sound much like the GSE Lease for Deed program launched a few months abck. Of course it does, Citi is practically a government owned lender just like toe GSEs!
Good move to launch it in Fla. Wonder why not NV, CA and AZ too.
Also wodnering what the plan is to deal with junior liens and deficiencies.
Providing relo counseling is great. Hopefully that will include counseling on how to repair your credit and not make this mistake again.
Also wondering how many borrowers will sign up for the free 6 months and then file BK at the end for more time.
One the one hand the program is allegedly addressing strategic defaulters. On the other hand borrowers who don't qualify for a mortgage mod or short sale? Not sure those are the same peole or that this solution is for them, but cudos for trying!