banktime.com

Homeowners in trouble now have an option other than flat-out losing their house and being evicted through the process of a foreclosure. It’s come about as the result of federal officials and mortgage industry leaders combining their brain power to find ways of getting distressed homeowners to leave the domiciles they are not paying for, without the costly and ugly process of foreclosure and subsequent eviction. Looking to “soften” the process by which homeowners are put out of properties on which they can no longer pay the mortgage, some banks are test-driving programs that would change things up, and give these troubled consumers some choices in their fate. It’s at the point where lawmakers have no choice but to acknowledge the fact that the current foreclosure prevention efforts in place are simply not working, no matter how many good intentions went into their creation.

I read about a Citigroup pilot program that sounds quite promising. Under the terms, delinquent homeowners will be allowed to stay in their homes without payment for as long as half a year if they did not qualify for other mortgage rescue / modification measures. The condition is that they maintain the property in good condition. The article I read estimated that as many as twenty thousand homeowners in Florida, Illinois, Michigan, New Jersey, Ohio, and Texas could be eligible for the pilot. That number is not quite at the seven-figure estimate of how many homeowners will fall through the cracks in the next few years, but for a good number the program will provide a more “graceful” transition between the disaster of a failed mortgage and a new chapter on their lives. Homeowners will still have to pay utilities while in the home, but the bank will pay homeowners’ association fees and associated costs. And the homeowners will also get money towards moving costs.

The Citigroup initiative targets some of the biggest problems facing the banking industry at present with regards to foreclosures. The biggest one? Disgruntled homeowners trashing their homes at the point when their home loan goes into default, leaving the bank with an expensive and time-consuming mess to clean up. Also, the contemporary trend towards “strategic default” – homeowners with unwater obligations choosing to foreclose rather than to throw money away on an investment they can’t possibly hope to recoup any time in the foreseeable future – is making foreclosure rates spike again. Through this innovative program, Citigroup can gain some control back of how many homes enter the glutted housing market, and hope to maybe maintain some more value in these distressed properties. If successful, the program could ultimately help prevent another dip in home prices if it is replicated widely and a large amount of homes are kept from a massive crash all at the same time.

The move by Citigroup is a close ideological cousin of an initiative started a few months ago by the mortgage financiers Fannie Mae and Freddie Mac, under which foreclosed homeowners could become renters of their own lost homes. Another parallel measure was the Making Homes Affordable act, or MHA. This program through the Treasury Department allotted as much as one thousand dollars to borrowers who sold their homes through a short sale. In these deals, lenders were supposed to forgive the difference between the selling value of the house and the outstanding mortgage.

Transactions through which homeowners voluntarily surrender their homes instead of being forced out through foreclosure are called “deed in lieu.” The Moody’s Economy firm estimates that deed in lieu real estate transactions will increase by around fifty percent this year, to around half a million transactions. Compare that to the estimated two million Americans who will likely lose their home this year, and you realize that it’s just a fraction. But at this point, almost anything is a welcome change from the relentless bad news that the American real estate market has been facing.