Citigroup, Inc, along with mortgage companies Fannie Mae (FNMA) and Freddie Mac (FHLMC), have announced plans to help more homeowners keep their homes, cutting interest or principal payments for some while extending loan terms for others. This mirrors similar moves made by other major banks, including JPMorgan Chase and Bank of America.
Answering a call from Congress to work with homeowners avert foreclosure, Citigroup will also contact half a million homeowners who are not behind in their payments, but who may need future assistance to keep their payments current. Criteria for receiving assistance include that the homeowner is working in good faith with Citi, has sufficient funds to make affordable mortgage payments and the home is the principal residence. Since last year, Citigroup has helped 370,000 families, representing over $35 billion in loans, stay in their homes. Over 765,000 homeowners received a default notice, had an action pending against them or were foreclosed during the third quarter, the most since records of this kind were first recorded in January 2005, according to RealtyTrac.
Last month, JPMorgan Chase expanded its workout plan to approximately $70 billion in loans which could help almost 400,000 customers. They have already helped over 250,000 homeowners since 2007, modifying over $40 billion in loans. Meanwhile, Bank of America has stated that beginning December 1st, they will modify almost 400,000 loans held by newly acquired Countrywide Financial as part of an $8.4 billion legal settlement reached with state officials last month.
As good as this all sounds, there may be a dark side to these moratoria. While many experts believe the workout plans are necessary, stating that if the housing market isn’t stabilized the economy will continue to suffer, a study by the Federal Reserve Bank of St. Louis warns that they may cause more harm than good. Citing similar moratoria during the Great Depression, the St. Louis Fed says that some unintended consequences might surface, including reducing the number of loans available and increasing interest rates on new loans.
As homeowners, if your mortgage is held by one of the big banks that will institute the moratorium, you stand to have a huge weight taken off your shoulders if you fit their criteria. Whether it’s lower interest rates or principal payments, or an extension in your loan terms, chances are you’ll breathe easier after the ink is dry on the paper. But, is it worth it if the result is fewer loans, higher interest rates, or both?
I’d be interested in hearing your opinion. Homeowners, Realtors®, or mortgage lenders, please feel free to leave a comment with your take on the pros and cons of this issue.
(This is a test post using Windows Live Writer. I was just curious…)