If Citigroup was hoping to polish its tarnished image, it might want to rethink its PR group. Despite its new program to rent to homeowners their own homes to avoid foreclosure, it appears there are a few facts not included in its presser.
Many may recall consumer advocates, politicians and economists have long since supported programs that keep families in their homes, even if it means them going into a rental agreement or lease versus their mortgage.
On Wednesday, the bank launched a program to rent out 500 homes to homeowners who are having trouble paying their mortgage, rather than put the loans in foreclosure and kick the owners out. Homeowner advocacy groups and liberal economists have been pushing banks to offer the option to rent to borrowers nearing foreclosure. Citigroup becomes the second bank to announce such a program. Bank of America made its own announcements last spring.
Here’s where it gets interesting, however. Citi can’t actually rent those homes out because it doesn’t own them. In fact, all of the initial 500 troubled mortgages were sold to a management company. For all intents, Citi has absolutely no dog in this hunt and if it has no stake, then it can’t make these deals with their one-time customers. This, of course, could mean big problems for homeowners who go into the program. They will have entered an agreement with a company that can’t legally enter into those agreements.
The new players in the game – the management company – has agreed to honor the deal. If the homeowner abandons his ownership, he will be assured of being able to remain in that house as a renter. But no one is quite sure how long the welcome mat will be out, any recourse the homeowners/renters have if the companies don’t honor those agreements or even if the homeowner will be able to reclaim his house. The only thing the companies have said is that they “prefer” three year leases with the homeowners/renters.
John Taylor, who is chief executive of the National Community Reinvestment Coalition, said last week,
Without Citi requiring a minimum three-to-five year time frame for the lease at a fair price, I’m not sure that this program will be very helpful to anyone other than the investors,
The point was made that investors likely were able to buy these mortgages at huge discounts, especially considering the stipulation that they must leave the current homeowners where they are, provided a mutually satisfying agreement is reached. Some say, however, that there’s a stronger likelihood that the investors won’t want to sell their investments and will likely push to keep those properties at a rental status. No one knows for sure what’s in the contract between those investors and the bank.
Now, some of those same analysts who hailed these types of agreements are now wondering why the banks don’t feel more of an obligation to protect the homeowners. One of those investment companies, Carrington Investments, has already been hauled into two court on at least two occasions because of allegations of not honoring good faith loan modifications to eligible borrowers.
Finally, analysts also point out that borrowers who agree to these programs automatically forfeit their eligibility for a loan modification under the recently settled lawsuit.