One giant lender has taken a novel approach to dealing with delinquent mortgage borrowers. Citigroup (Stock Quote: C) has rolled out a new plan that would allow borrowers to remain in their homes — free of charge — for six months. All the borrower has to do is sign over ownership of the home to the bank.
How is this possible? In short, banks are getting fed up over delinquent mortgage borrowers. According to a 2009 national survey from Reecon Advisors, 9.2% of U.S. homeowners would opt for default if their homes were underwater (i.e. when the loan value exceeds the home’s value).
A breach line is beginning to emerge on such mortgages, and banks have likely taken notice. A First American Logic study shows that when a home’s value falls to 75% of what’s owed on the mortgage, homeowners begin thinking about mailing those house keys in to the lender and walking out the door. The report estimates there are 4.5 million U.S. homeowners who have their mortgages underwater through the third quarter of 2009.
Banks have also no doubt seen the January study from Transunion that shows Americans place a higher priority on paying their credit card and auto debt than they do their home mortgage. If banks can bail, the thinking goes, then homeowners increasingly believe they can, too.
Well, Citi has seen enough. A pilot program called “Foreclosure Alternatives” launched on Feb. 12 will enable underwater Citi mortgage borrowers to evade foreclosure, and still live in their homes as long as they sign over the deed to the bank. It’s called a “deed-in-lieu-of-foreclosure” program and it’s now available for Citi borrowers in Ohio, New Jersey, Illinois, Michigan, Texas and Florida.