CitiMortgage launches program for distressed homeowners

Distressed Florida homeowners whose loans were financed by CitiMortgage may be able to stay put for a while and avoid the pain of foreclosure proceedings under a new program, the company said Thursday.

The deed-in-lieu program – which, beginning Friday, will be tested in Florida and five other states – allows those facing foreclosure to remain in their homes for six months, in exchange for signing over their property deeds to CitiMortgage at the end of the period.

It is designed “to help homeowners make a smooth transition into the next chapter of their lives,” according to a news release.

Deed in lieu of foreclosure is a process in which homeowners give away their property to the lender, which then sells it to retrieve a part or all of the loan balance owed.

While it may be welcome news for those facing the loss of their home, Weston-based foreclosure attorney Roy Oppenheim questions the timing.

“We are two years into the crisis, and now they are trying to get creative? This was the kind of stuff we wanted to see a year ago,” he said.

The program comes with several caveats: The homeowner must hold the first mortgage with a clear title owned by CitiMortgage and be at least 90 days delinquent. There can be no second mortgage.

Borrowers must maintain the property in its current condition and pay utility costs. Other costs, such as homeowner association and escrow fees, are to be determined on a case-by-case basis, depending on the homeowner’s ability to pay.

They also must agree to bi-monthly meetings with relocation counselors.

CitiMortgage will provide a minimum of $1,000 in relocation costs to help borrowers.

So, what’s in it for CitiMortgage? For one, it spares the lender the expense of going through a foreclosure, which is lengthy and expensive, noted Mark Rodgers, Citigroup’s director of public affairs.

Second, because the home must be maintained, its value is not diminished.

“Once the owner moves, we get the property that’s in better condition, so we can immediately market it,” Rodgers said. “It’s much more likely to sell quickly in good condition than in bad condition.”

Scott Coloney, of the Foreclosure Response Team in Fort Lauderdale, said he’s been hearing a lot about deed-in-lieu programs among those in the banking industry, but he doesn’t think it’s going to solve the overwhelming problem plaguing the real estate market – the glut of foreclosures.

“The idea is to create transactions,” he said. “To get the economy going, you need movement.”

CitiMortgage hopes that, by allowing homeowners to stay put for a while, it will keep more homes from being added to the existing backlog.

“If we can get them out in a more measured way, we can hopefully avoid that,” Rodgers said.

On Thursday, RealtyTrac reported that one in every 187 homes in Florida received a foreclosure notice in January.

Before borrowers can enter the program, they will be evaluated for a permanent mortgage modification. If they don’t qualify for that, a short sale, in which the company might accept a buyer’s offer for less than the outstanding amount of the loan, will be considered.

If that is unfeasible, the next step would be the deed-in-lieu program.

The program, however, may prove to be only a drop in the bucket when you consider how many homeowners nationwide face default.

Rodgers said that, within the entire six-state pilot program – which includes Texas, Illinois, Michigan, New Jersey and Ohio – the company expects just 20,000 may be eligible and only about 1,000 will actually participate.

However, he noted that it is a pilot program and, for it to work, it will have to achieve some scale.

“We are looking to see if this is successful, then maybe others will join us,” Rodgers said.

In November, Fannie Mae announced a Deed for Lease Program that lets borrowers who don’t qualify for loan modifications transfer their property to Fannie Mae in exchange for a lease.

Under that program, borrowers pay rent, which, in most cases, is lower than the mortgage payment.

Source: http://southflorida.bizjournals.com/southflorida/stories/2010/02/08/daily40.html?s=industry&page=2