Mortgage Lenders To The Rescue…For Who?

Citigroup has created the Citi Homeowner Assistance program to help mortgage holders avoid foreclosure.

Citi is not the first and will not be the last bank to announce homeowner relief efforts.  Bank of America and JP Morgan Chase have already taken recent measures to spare homeowners from foreclosures.  Fannie Mae and Freddie Mac will release details of their homeowner relief programs this afternoon.

According to MarketWatch, Citi has trained counselors who will initiate contact with homeowners particularly in areas where prices are falling and unemployment is high.  Over the next six months these counselors will attempt to make contact with 500,000 borrowers via mail, email, phone, social networks…this type of grassroots effort sounds familiar.

Perhaps CHANGE has come to Citigroup ;)  Wishful thinking.

All of this sounds nice: saving people from foreclosure, reformulating payments and interest rates, using every available method of contact to reach out… I can’t help but think that Citi’s primary motivation for the sudden flash of corporate altruism is to save it’s own bottom line. 

The current crisis can be traced back to many securities backed by mortgages.  They may have new owners, but nothing about the structure of these now infamous toxic assets has changed.  Citi (and every other bank) knows that home price stabilization is paramount to restoring value in both housing and financial markets.

A home is the largest asset most people own.  Many people refinance to pull out cash or borrow against equity in their homes for spending or paying off other debts.  Owners can’t access equity if they owe more than the house is worth so they spend less (hence the terrible spending and confidence figures) and perhaps default on other obligations (take a look at the rising rate of defaults on credit cards and auto loans).  With the surging defaults and falling prices, banks don’t want to make new loans and you know the rest.

Regardless of Citi’s motivation, assistance for some homeowners is on the way and I hope the relief reaches those who need it.