One of the options often available to troubled homeowners is a “deed-in-lieu”, where the borrower returns the house and the keys to the lender, rather than face foreclosure. Now Citi is trying a pilot “rent-in-lieu” program, where borrowers can hand back the title, but continue to rent:
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 Wednesday 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.
This is probably a great deal for underwater homeowners who can get it. The term “underwater homeowner” is actually an oxymoron. After all, when a “homeowner” has no equity, all the home’s value belongs to the bank anyway. There’s actually a certain irony to this. After all, if you are 33% underwater, you have -33% equity. By renting your equity improves to 0%, and you “own more” than you did before.
The problem we see with Citi’s program is that there is a large portion of people in foreclosure who would not be helped by this. We’ve seen so many people walking away from their homes, presumably because they can’t hang on long enough to do a short sale. No modification or rent program can help when you can’t afford to keep the lights on.
It will be interesting to see how successful this program is.