Citigroup will try something new to keep struggling homeowners out of foreclosure: turn them into renters.
CitiMortgage announced the program Wednesday and painted it as a way to help homeowners stuck in houses they can’t afford. The New York-based bank, however, won’t manage the program. Instead, the bank just sold a $158 million mortgage portfolio to investment firms that will manage the
Carrington Capital Management and its sister mortgage company will comb the portfolio for eligible homeowners – though they’re homeowners in name only, as they are still paying for their houses. Carrington is looking for people who owe more on their house than it’s worth, but also seem to have the means to keep making monthly payments.
They also must live in the house, meaning it can’t be a vacation home or investment property. And they have to be at least four months late on payments.
Carrington says the pilot program will help about 500 homeowners in six markets that have been hit especially hard by the plunge in housing prices: Arizona, California, Texas, Florida, Nevada and Georgia. It says it will begin contacting eligible homeowners this month.
Homeowners who choose to participate would have to transfer the ownership of their house to Carrington and another firm, Oaktree Capital Management. Carrington would then negotiate with the homeowners-turned-renters for “a manageable monthly payment” and how long the lease should last. The rental rates would be determined by local market rates, Carrington said, and they should be less expensive than the homeowners’ current mortgage payments.
Citigroup Inc.’s announcement is just the latest reminder of the long-lasting effects of the housing crisis. Banks that churned out home loans before the crisis have found themselves ill-equipped to know what to do when so many mortgages started turning delinquent, which is one of the reasons the crisis has persisted.
In a statement, CitiMortgage CEO Sanjiv Das called Carrington “one of the best property management companies in the country.” Outsourcing the job made sense, Das said: “As a financial institution, managing a program of this nature is not within our area of expertise.”