Citi’s Mortgage Holiday

Today Citi announced a new program to help troubled borrowers stay in their homes, specifically borrowers who have lost their jobs. Homeowner Unemployment Assist “will help recently unemployed, delinquent CitiMortgage customers stay in their homes by paying a reduced monthly mortgage payment for three months,” says the press release. The average monthly payment for those three months would be $500.

Of course the borrowers must meet “certain criteria,” including having lost their jobs in the last 6 months involuntarily. The loan must be a first mortgage that is owned and serviced by CitiMortgage, Inc, was a conforming loan at the time of origination (so likely $417,000 and under) and is for the principal residence of the customer. The borrower must be 60 days or more delinquent on the loan or in foreclosure and must have sufficient funds to make the reduced payment. They also have to be ineligible to participate in the FDIC’s long-term modification program, which has been adopted by Citi.

Ok, phew. So if you meet all that, and your loan is actually owned by Citi (Citi owns 1.4 million and services 4 million—can’t be just serviced) then you’re good to go…for three months.

I spoke to CitiMortgage CEO Sanjiv Das, who admits that 1.4 million is just a small pool, but he hopes that Citi will serve as an example to other big banks who might then follow its lead. He said he hoped this 3-month financial breather would “encourage people to actively look for jobs.”

But, I asked, might it not encourage folks to do just the opposite, like take a 3-month break from working since they’re getting a pretty free ride? I was impressed with Mr. Das’ candour: “I think the biggest moral hazard is that we change people's employment seeking habits which is something we don't want to do. We also want to make sure that we actually provide the bridge to be able to go back into the work force and find jobs, so this is meant to be helping those families that are in distress after loss of employment.”

Fair enough.

Questions? Comments?