Quick, somebody pinch me. I'm not dreaming, am I?
A huge and supposedly soulless financial institution is finally going to do the right thing, not only in terms of helping out people facing financial ruin and the likely loss of their homes, but also for its own bottom line and for its investors.
I'm talking about the news of Citigroup
This makes so much obvious sense that I have to wonder why no one has thought of this before.
Actually, it has been. Bank of America
Citigroup's lease back program will start off with a much smaller footprint. It will offer the program to only 500 borrowers in Arizona, California, Texas, Florida, Nevada, and Georgia. To be eligible, they must be more than 120 days late with their payments and owe more than their homes are worth.
This type of program, called a "deed in lieu of foreclosure," was used during the Great Depression but fell out of favor when the economy picked up again. It took our recent foreclosure crisis for lenders to start considering it again.
The benefits of the lease back programs to be such a no-brainer that I am amazed that these programs haven't been started sooner. First off, Congressional estimates put the foreclosure process taking almost two years at a cost of almost $78,000 for each home. Then there is the real loss of value to the property itself if a borrower, underwater on the loan and unable to make its payments, just walks away from it all, leaving the house vacant and prone to vandalism.
In neighborhoods particularly hard-hit by financial woes, one vacant and vandalized home can lead to more until you have a whole blighted community on your hands. Who would want to buy a home in such an area? Property values start spiraling into the ground.
Bank of America executive Ron Sturzenegger told the AP at the beginning of its program that "If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices ... and curtail neighborhood blight by keeping a portion of distressed properties off the market."
CitiMortgage CEO Sanjiv Das gave a similar reason in a statement: "In addition to helping families by keeping homes occupied, the program assists neighborhood revitalization and stabilization efforts..."
Of course, Citi's and Bank of America's actions aren't being done just out of the goodness of their hearts. Los Angeles raised a furor last summer when it named German banking giant Deutsche Bank
The Treasury Department also got into the game when it said it would withhold payments to Bank of America, J.P. Morgan Chase
So far, two banks have started "deed in lieu of foreclosure" programs, at least in a small way. There are many more lending institutions out there that could find it in their best interests to keep borrowed upon properties occupied, and many thousands of desperate home "owners" would welcome the opportunity of keeping their roofs over their heads.
Bank of America is one of the most widely traded stocks out there. Some feel this "too big to fail" bank is available now at a bargain basement price giving investors a great opportunity. But before you put your money down, do yourself a favor and read the Fool's Bank of America report. It will give you all the facts you need to make the right investment decision.
Fool contributor Dan Radovsky, other than some Citicorp issued mortgage-backed securities, has no other financial interest in any of the above-mentioned companies. The Motley Fool owns shares of Citigroup, JPMorgan Chase, and Bank of America. Motley Fool newsletter services have recommended buying shares of Wells Fargo. Motley Fool newsletter services formerly recommended JPMorgan Chase. The Motley Fool has a disclosure policy.