Citigroup on Monday joined a growing list of financial institutions offering to modify the terms of mortgages for distressed borrowers, unveiling a program to help thousands meet their monthly payments while reducing the bank’s potential for larger losses as the economy erodes.
About 130,000 mortgage customers are expected to qualify for the program, resulting in the workouts of over $20 billion of loans. Bank executives said they believed it would reduce losses by hundreds of millions of dollars, and possibly more. Like some of its competitors, Citi will also hold off foreclosing on troubled borrowers who have income enough to make their monthly payment and who make a good-faith effort to work out their loan with the bank.
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JPMorgan Chase, which acquired Washington Mutual and its troubled loan portfolio, announced plans in late October to cut monthly payments by lowering interest rates and temporarily reducing loan balances for as many as 400,000 homeowners. Bank of America, which acquired the large mortgage lender Countrywide Financial, announced a similar program aimed at 400,000 borrowers as part of a settlement with state officials a few weeks earlier. And HSBC ramped up its mortgage modification effort in January, and has adjusted 61,000 mortgages so far this year.
The loan modification programs closely resemble one that the Federal Deposit Insurance Corporation put in place at IndyMac after it took over that bank in mid-July. Citi plans to reduce monthly payments by temporarily reducing loan balances and by cutting interest rates to as low as 1 percent for up to 2 years. The F.D.I.C. has said it may be able to help 47,000 delinquent IndyMac borrowers.
All total, these plans could help up to 1 million homeowners. That's a good start.
My guess as to why this is happening is that working out the mortgages is now cheaper than selling the home at a loss in a foreclosure.
5 comments:
So the message here goes like this:
"If your bank is willing to work with you on your mortgage, don't -- mail in the keys and move out, because the house isn't worth what you're paying.
If your bank refuses to work with you on your mortgage, then fight tooth and nail to stay in, because the house is worth at lease what you're paying."
Good to know....
Another motive for the banks might be that they don't have to declare the loss until they foreclose. If they work out a modification, does it appear on the balance sheet ?
Just thinking... If they wait until there is an Obama administration, they might be pused into making modifications that will be moe favorable to the home owner. If the issue is an Option ARM, that will reset higher in a few months, and they leave it where it is now, or even a little lower... and the amount of the mortgage is NOT adjusted, they the banks come out better in the long run. Just thinking and all. I doubt very seriously they are doing this because they want to be "nice" to the home owner....
JWC
I can absolutely afford my current mortgage. Aside from my credit rating what is to stop me from only paying half of my monthly mortgage payment and telling Countrywide that it is all I can afford. They are probably not going to foreclose on me and I may get a $50-$70k writedown on my mortgage. Is $50k+ worth 7 years of bad credit?
This was interesting information. There are a lot of aspects of mortgages that can be tricky or shady. It's good to know what's going on.
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