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Mortgages: Hand over the keys?

We don’t like our underwater mortgages. But solutions for the problem are few. 3661839.thl.jpg

You can read the comments from yesterday’s post. Borrowers are fed up.

A few frustrated bankers are, too. Said one to me,

“You borrowed the money, you have to repay it. When you sell your home for more than you paid, you don't share your profit with the bank. So why should the bank take a loss for your underwater mortgage?”

Well, if you prefer to just get out of the whole thing, the bank will usually just let you hand over the keys.

Citi today says it has a new program for that with a “foreclosure alternative” spin to it. However, I can’t figure out who would benefit from this new deal other than Citi. I couldn’t get them on the phone this morning, so I have to stick to what they put out on Business Wire.

The announcement said that CitiMortgage has launched a foreclosure alternatives pilot program that would allow distressed borrowers in Florida (and Illinois, Michigan, New Jersey and Ohio) to sign over their homes to CitiMortgage, avoid foreclosure, stay in the home for six months, but at the end of the period, CitiMortgage owns the house. The borrower would get some relocation assistance for moving out.

Is this better than just a plain old deed-in-lieu in which you give the lender back the house? Is it a slower process? Does it protect your credit any better?

POSTED IN: Mortgages (22)

Discuss this entry


I think the taxpayers share some of Citi's pain/loss when you do this foreclosure alternative” program, and other lenders are being encouraged to participate in this new bailout program by the administration.

Six months allows a smooth move out to an area of the country with more better job prospects (not an economy like Florida's based on endless development and expansion of local government) and more reasonable costs of living, and perhaps landing a new job with an intact credit report during that period. In return for the partially taxpayer-funded incentives, Citi gets a home for resale without missing appliances, HVAC system, water heater, and concrete poured down the toilets.

“You borrowed the money, you have to repay it. When you sell your home for more than you paid, you don't share your profit with the bank. So why should the bank take a loss for your underwater mortgage?”

Harriet - frustrated bankers? This might have been a valid argument if the very same banks were not complicit in this debacle - sadly, we all know they are VERY complicit.

Oh no! I bought a car and it's worth less as I drive off the lot. Will the dealership re-write my auto loan because i'm underwater on it?

Mortgages cannot be compared to car loans. No one expects a car to hold its value, much less appreciate. But the underlying assumption with residential mortgages is that the pledged asset, namely the house, will at very least hold its value and over time appreciate. That was the original premise of requiring 20% down, the bank was willing to take 80% of the risk if the homeowner took the first 20% However, the price declines have been unprecedented, mainly because the values were so over inflated (via reckless lending) by the very banks that are now unwilling to take the loss on their portion of the mortgage.

I do not want a free ride, and will gladly equity- share any future appreciation if the bank would refinance me to the same equity position I had when I purchased.

Wonder what the catch is because so far all the benefits of this crisis has only served 1 group..the bankers!

February 10, 2010, 10:59 am

And more specifically, not only has the financial industry has been bailed out with taxpayer commitments; it continues to rely on a taxpayer backstop for its stability. Don’t take it from me, take it from the rating agencies:

The planned overhaul of US financial rules prompted Standard & Poor’s to warn on Tuesday it might downgrade the credit ratings of Citigroup and Bank of America on concerns that the shake-up would make it less likely that the banks would be bailed out by US taxpayers if they ran into trouble again.

The point is that these bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state. There’s good reason to feel outraged at the growing appearance that we’re running a system of lemon socialism, in which losses are public but gains are private.

Frustrated bankers? from what not knowing where to place all the $ ther pocketing from one sided policies...what is it with people are they numb to what a stacked deck is?

The Indymac Slap in our Face. 02.08.10

Another prime example of how "uncredit worthy" consumers have destroyed this economy and are once again getting away with it! They don't know what it's like to sacrifice. They're the ones that have destroyed this economy and the savings of the individuals that truly worked hard and sacrificed! We're getting punished and we didn't do anything wrong.

It's so sickening to hear all the sob stories. Get over it people. You signed your name - YOU OWE!

Hold Yourself Accountable for Once = complete moron.

According to you every bad loan was to an uncredit worthy borrower? I mean have you seen the statistics? You must be a bankster.....

Do you remember the weekend bailout...who was bailed? Not the homeowner...

Try reading

For all the uninitiated who live in a bubble....

It's not an accident when you create a security because some hedge fund manager (even if a really bright one) comes to you and wants to short something - so you give him a means to do so, and then sell the other side of that off to people without telling them how it came into existence in the first place, including how, why, and at who's behest and for what purpose you created it.

It's not an accident when you run up against leverage limits (as Goldman did) and your big cheese (Hank Paulson at the time) goes to the SEC and gets them to remove that leverage limit for investment banks - then the two investment banks that subsequently fail, Bear Stearns and Lehman, both do so after more than doubling their leverage beyond the former legal limit!

It's not an accident when a whole host of Wall Street (and Main Street!) banks willfully and intentionally ignore FBI warnings in 2004, a Corelogic credit survey in 2006 and HUD study in 2007, all of which warned of rampant mortgage fraud and lies about incomes in 50% or more of "ALT-A" loans, packaging up that debt and selling it to investors without warning them that the so-called "quality" claimed in those loans was almost certainly - in the opinion of both government agencies and private credit analysts - simply not present.

It's not an accident when the ratings agencies also ignore these warnings - if there was a group of companies that should have been the ultimate experts on such matters it is S&P, Moody's and Fitch, all of whom either had to know or should have known about the warnings by The FBI, Corelogic and HUD, never mind their (admitted) computer models that omitted any possibility of home price declines.

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You've got the job of managing your money. No one in school taught you how.

But you and I, we can teach each other, how to handle it, how to save for retirement, how to make money... < More >

Harriet Johnson Brackey Harriet Johnson Brackey, the personal finance writer for the Sun-Sentinel, has been an award-winning business...< More >

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