The Mortgage Moratoriums Make Sense
Let’s say you owe $200,000 on your home, but it’s only worth $165,000 now. Let’s say your hours have been cut back at work so you’re really struggling with your house payment. You’ve fallen three months behind because you can only afford $1000 each month rather than $1400 … if only your mortgage company would let you.
If the mortgage company is bent on foreclosing, they will do so if you’re not caught up by such and such date. However, foreclosures cost the mortgage companies a LOT of money - I once heard foreclosures cost lenders about $62,000 each. Wouldn’t it make sense for the companies to put a moratorium on foreclosing these homes and instead renegotiate the loan so that the homeowner will have a more affordable mortgage payment? In that scenario, everyone wins.
The new home loan could stretch from 30 years to 40 (I know that is a LONG time to pay on a house, but it is possible these days). Renegotiating for $165,000 - the current value - would cost the company $35,000 from the original loan, but after considering it would cost $62,000 to foreclose and resell, they would save $27,000 overall. And the homeowner would get to keep their house.
Citigroup has announced plans to do this and I applaud their initiative,
Citi said late Monday it won’t initiate a foreclosure or complete a foreclosure sale on any eligible borrower who seeks to stay in a home if it is the borrower’s principal residence, the homeowner is working in good faith with Citi and has sufficient income to make affordable mortgage payments.
Citi said it is also working to expand the program to include mortgages the bank services but does not own.
Additionally, over the next six months, Citi plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are deemed as potentially needing assistance to keep current with their payments. This represents about one-third of all the mortgages that Citigroup owns, the bank said.
If this effort is successful, I hope other lenders will follow Citibank’s example and help stop the bleeding.
February 12th, 2009 at 1:22 am
[…] Back in November 2008, I urged all mortgage companies to follow in Citigroup’s footsteps and place a moratorium on foreclosures. I said, If the mortgage company is bent on foreclosing, they will do so if you’re not caught up by such and such date. However, foreclosures cost the mortgage companies a LOT of money - I once heard foreclosures cost lenders about $62,000 each. Wouldn’t it make sense for the companies to put a moratorium on foreclosing these homes and instead renegotiate the loan so that the homeowner will have a more affordable mortgage payment? In that scenario, everyone wins. […]