Citi Says Mortgage Principal Forgiveness Must Rise
By Matthias Rieker, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- As unemployment rises, more borrowers need principal
forgiveness on their mortgages, not just restructured loans, Citigroup Inc.'s (
C) mortgage chief said.
The comments by Sanjiv Das, president and chief executive of Citigroup unit
CitiMortgage Inc., came as Citigroup issued its latest quarterly report on its
own mortgage modification efforts. Citigroup said it helped 130,000 home owners
with $20 billion in mortgages outstanding avoid potential foreclosure last
quarter.
That number increased 20% from the second quarter, the bank said in its third-
quarter foreclosure prevention report issued early Tuesday; 3% of the $751
billion of mortgages Citi services were in loss mitigation programs or in
foreclosure--a one percentage-point increase from the second quarter.
Citigroup is alone among large banks in issuing quarterly reports on efforts
to help troubled mortgage borrowers avoid foreclosure; the reports provide a
glimpse into how broader national efforts are faring, a keen interest of
President Barack Obama, other politicians, and community groups.
Citi said it mitigated or modified 82% more mortgages in the third quarter
than in the second quarter, and 85% more than a year earlier amid rising
unemployment and the impact of the government mortgage modification program.
Mitigation includes all efforts to avoid foreclosure, including non-modification
solutions such as "short sales" of homes for less than the mortgage balance.
As the main problem of the mortgage industry shifts from house-price
depreciation to unemployment, the stressed mortgage market needs more programs "
where there is principal reduction for borrowers with negative equity" in their
home, "as opposed to just a loan restructure," Das told Dow Jones Newswires.
"The solution" of the mortgage crisis "has to move into the next gear," he
said. The government's Home Affordability Mortgage Program, or HAMP, has "not
quite addressed the issue of unemployment."
Rising delinquencies among prime borrowers are predominantly due to
unemployment, Das said. He said the government has been "very receptive and very
eager" to find solutions.
Das said he expects the number of HAMP modifications to rise, but Citi might
end up doing more non-HAMP modifications because the standards of the HAMP
program are more stringent than those of banks, including Citi. (In addition,
the HAMP program is only eligible for first mortgages.)
Rising numbers of home owners are defaulting after their loans are modified,
Citi said in its report. Re-default rates in the quarter were nearly 39%; that
number compares to 29% in the second quarter.
Nevertheless, "the performance of home equity loans started to improve" across
virtually all FICO score groups, "largely driven by the restructuring of first
mortgages" in HAMP, Das said.
Foreclosures initiated in the third quarter rose about 10% from the second
quarter but fell about 11% from a year earlier. Completed foreclosures fell less
than 1% from the second quarter and about 48% from a year earlier.
Citi's foreclosure report is posted on the bank's Web site.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@
dowjones.com
(END) Dow Jones Newswires
11-24-090016ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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