Citigroup, Inc. Imposes Mortgage Moratorium

foreclosure-next-exit-sign

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…)

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Comments

  1. admin

    @Thesa: Agreed. We know a few people this would help, and they’re not optimistic about their future. Hopefully, the results from the Great Depression won’t repeat themselves in the present. We think the inventory levels are coming down in some places, and we can see increased activity in our market now, even heading into the slow winter months. We remain optimistic about the market returning to normal sooner than later.

  2. Steve Belt

    Wayne-

    Isn’t Windows Live Writer great? I personally love it. And your new WordPress powered blog looks awesome.

    On topic, I have mixed emotions about the bailout. I don’t think it’s “fair” to those that struggle to pay their mortgage on time, but refuse to accept a bailout, to be the ones that are actually paying for their neighbor’s bailout. The sharing of wealth that is occurring in this country today is monumental, and I’m not sure how the 90% of Americans that didn’t get stupid loans and that are meeting their obligations are best served by bailing out the other 10%.

    Change those percentages any way you want…the bottom line is that a bunch of Americans will pay dearly for the mistakes of another bunch of other Americans. I’d prefer it if the folks that made the mistakes were the only folks paying for it.

  3. Post
    Author
    The Harriman Team

    Steve,

    Thanks for the compliments, I still have some spiffying up to do to the blog, though. I thought WLW was pretty cool, but I didn’t see a way to publish the post from inside it. I had to go to my WP dashboard and publish the post manually. Maybe I missed something.

    Just to add to your comment, in addition to the folks who made the mistakes being the ones who pay, maybe we should extend that to the companies who messed up too, like AIG, GM, etc. Why make the public pay for executive mistakes and then let those execs off the hook with multi-billion dollar parachutes? Doesn’t make sense. I, for one, don’t want to be paying for executive retreats for the rest of my life. Thanks again for stopping by!

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