Citigroup Inc. announced last week that it plans on letting homeowners who are on the verge of foreclosure stay in their homes for six months provided that they turn over the deed to their property back to Citigroup.
The pilot program, called "Foreclosure Alternatives," began last week in 6 states including Texas, Florida, Illinois, Michigan, New Jersey and Ohio. It's expected that at the beginning of this new program about 1,000 homeowners will participate and depending on how well the program succeeds Citigroup may expand the program nationwide.
In a typical foreclosure the lender regains legal control of the home and subsequently removes the homeowner, however, the Citigroup's program will allow the homeowner avoid a completed foreclosure. Despite the drawback that the homeowner must still vacate the home after six months; the program does have a positive impact on the homeowners which results in a much less of a hit to the borrower's credit score.
According to Moody's Economy.com almost one in every three U.S. homeowners owes more on their mortgages than their homes are worth. This new Citigroup policy is a way to handle what lenders are seeing as a growing phenomenon which is borrowers are choosing to default on their mortgages.
Many analysts say these types of borrowers, especially the ones that owe at least 20 percent more than their home's current market value, are just walking away because they see little to no chance that their homes price will ever come back.
Making the process more time-consuming and expensive for the lending industry is the fact that many states are lengthening the time that it takes to complete a foreclosure.
Citigroup's top mortgage executive Sanjiv Das said, "Why should we all go through the foreclosure process and evict people? Avoiding foreclosure is less painful for our borrowers as well as for us."
Citigroup will also pay at least $1,000 in relocation costs for homeowners and will also consider helping them out with other expenses, but borrowers will still need to pay all their utility bills. Citigroup will also provide relocation counseling.
The program is designed to help those borrowers who did not qualify for a short sale or a mortgage modification.
Last November Fannie Mae announced a similar policy to Citigroup's where they allow homeowners to give back the deed to their home and then Fannie Mae will rent the home back to the ex-homeowner at market rates.