According to the Wall
Street Journal Citigroup is starting a program to allow 500 homeowners in
trouble with their mortgages to rent back their homes if they sign over the
deed, a step some lenders are taking to help people avoid foreclosure.
The bank said that it
has sold $158 million in loans it holds on its books to a joint venture of
Santa Ana, Calif.-based Carrington Capital Management LLC, which is investing
in distressed real estate and mortgages, and Los Angeles-based investor Oaktree
Capital Group.
The homeowners, who live
in Arizona, California, Texas, Florida, Nevada and Georgia, will be offered the
chance to rent the homes at market rates if they can no longer afford their
mortgage payments, even with a modified loan. The pilot effort could be expanded
if it is successful.
Under the program,
borrowers would agree to a "deed-in-lieu" of foreclosure, in which
they sign over ownership of the property to the lender. This is less costly to
the bank but it is still a foreclosure.
Homeowners are not required
to accept the deed-for-lease program. The leases are expected to be signed at
market rates but are likely to be lower than the borrower's current mortgage
payments.
Earlier this year, Bank of America launched a similar program
involving 2,500 homeowners in Arizona, Nevada and New York and California.
Unlike Citi, B of A is not selling the loans off right
away. Instead, it is using third-party companies to help approach customers,
and plans to sell the loans to investors once leases have been signed.
Will it work and is it
an answer to the tangled mess of underwater homeowners nationwide -- only time
will tell.
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