Interest Rate Roundup

Tuesday, March 03, 2009

Citigroup's new mortgage plan: No job, no problem

One reason so many of today's loan modification programs are failing is that the problem is no longer just the structure of borrower loans, it's the broad economy. It's relatively easy to modify a loan and keep a borrower in his home if, say, his only problem is that he can make the start payment on an ARM, but couldn't do so if the ARM rate and payment adjusted higher. The solution is pretty straightforward there: You just freeze the rate and payment at the start rate and get on with your life.

But if that same borrower loses his job, and can't find a new one, then you've got a much bigger problem. Now, he can't just not make the higher post-start-rate payment. He can't make the start payment. That makes it pretty hard to come up with a modification that works. But according to the Wall Street Journal, Citigroup is going to try. More below:

"Citigroup Inc. announced Tuesday a new program aimed at addressing the latest challenge facing the mortgage industry: unemployed homeowners.

"Under the program, Citigroup will temporarily lower mortgage payments to an average of $500 a month for certain borrowers who have recently lost their jobs and are at least 60 days behind on their mortgage payments. Borrowers will be allowed to make the lower payments for three months. Citigroup will waive interest and penalties during this period.

"Citigroup's announcement comes days before the Obama administration is expected to announce guidelines for its massive loan-modification program, a cornerstone of its effort to fight the housing crisis. The bank's new initiative takes aim at one of the hardest groups of borrowers to assist: those who have seen their income fall sharply.

"We expect that there will be thousands of people we can help," said Sanjiv Das, chief executive of CitiMortgage, who called rising unemployment "the single biggest issue facing mortgage servicers." Although the novel program will help just a small fraction of troubled borrowers, Mr. Das said he hopes it will be copied by others in the industry.

"To qualify for the program, borrowers must live in the home and have a mortgage that is owned and serviced by CitiMortgage. The program applies only to loans of $417,500 or lower. Citigroup holds 1.4 million mortgages on its books. It also services another four million loans for others, but those don't qualify for the program."


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