The concept isn’t new in the banking industry, but Citigroup Inc. (NYSE:C) announced the launch of a program that is designed to cut down on foreclosures and, in some ways, protect the dignity of homeowners by giving them the opportunity to sign over the titles to their houses and live in the house on a lease – in lieu of going through a stressful and painful process of foreclosure.
Citigroup Inc. (NYSE:C) is not the first bank to pilot this program – Bank of America Corporation (NYSE:BAC) already has a similar program in place, for up to 2,500 homeowners – but it is the latest, perhaps showing that the program lends itself to some success and thus may start a new trend in trying to help the housing markets in many cities. Citigroup’s program would extend to as many as 500 families who owe more on their mortgages than their home is worth, are more than 120 days past due but can afford rent at current market rates.
The motivation behind this program is, according to CitiMortgage CEO Sanjiv Das, “In addition to helping families by keeping homes occupied, the program assists neighborhood revitalization and stabilization efforts, which are crucial to the nation’s economic recovery.”
Citigroup Inc. (NYSE:C) is starting this program this month in several states – California, Nevada, Arizona, Florida, Georgia and Texas – on about $158 million in mortgages that were sold to a joint venture consisting of hedge fund Carrington Capital Management and investment firm Oaktree Capital Management.
The goal with the Citigroup Inc. (NYSE:C) program is to keep the homeowners in the homes to stabilize neighborhoods. The program launched by Bank of America Corporation (NYSE:BAC) differs in one way – the homeowners would become renters, and the new rental house would be sold to investors, who then become the landlord, rather than the bank. Bank of America Corporation (NYSE:BAC) launched its program in March and stated it has not progressed enough to give any meaningful data.
It is an interesting concept – if it works, then there is a decent chance this program will expand to other mortgage lenders, more homeowners in more states.