Citigroup (NYSE: C) is reusing an old advertising slogan: Citi never sleeps. I guess the idea is that since it operates in 100 countries there is always a Citi employee who's on the job. The latest result of all that 24x7 brain power is a plan to let some its customers sleep in their own houses instead of kicking them to the curb. Which people? The people who borrowed money from Citi to buy houses and who are struggling to pay back the loans.
I found out about this proposal yesterday, although I did not know the details, when a radio network asked me to comment on it for broadcast today. But the news was embargoed until midnight so I can now blog about it. Citi says it will put a moratorium on foreclosures for borrowers who pass three tests: they have enough income to make "affordable" mortgage payments; they are working "in good faith" to renegotiate the loan; and the mortgage pertains to their principal residence.
Citi plans to focus on $20 billion in mortgages in states with the biggest foreclosure concentration -- Arizona, California, Florida, Michigan, Ohio and Indiana. Citi will assign 600 salespeople to adjust mortgage rates, reduce principal, or increase the term of the loan. In the next six months, Citi will contact 500,000 people, a third of its total mortgage population, who are current on their payments but who might need help keeping current.
Is Citi's move more than just PR? There is not enough information to know. With four million people expected to enter foreclosure in the U.S., even if Citi's efforts stopped 500,000 foreclosures -- and this is probably a much higher level than Citi will actually achieve -- it would only make a modest dent in the overall problem. Furthermore, Citi's criteria probably apply to a fairly small number of borrowers, depending on how it defines an "affordable" payment. Moreover, it is unclear how much this program will cost Citi and what proportion of the foreclosures are merely delayed rather than avoided.
Nevertheless, it is commendable that Citi is trying to do something. Unfortunately, in the real world, trying is not doing. One only has to look at Citi's failed bid to buy Wachovia (NYSE: WB) to know that.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.
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Reader Comments (Page 1 of 1)
11-11-2008 @ 9:50AM
Emett said...
Bravo! It is refreshing to see George Bailey's spirit is still trying to do the right thing. People will pull this out if they are given the chance and have work. Focus on the customers needs instead of the stockholders and you may see that those companies will succeed!
11-11-2008 @ 11:25AM
Christopher said...
Too little, too late. With a clean credit history, and never a late payment in 13 years, I tried to negotiate with Citimortgage when I first became unemployed. Unless I was 90 days behind, they wouldn't do one single thing! After two years, I've found another job in a different state. But my house is still unsold and on the market, and its value has dropped by 20%, so it's too late Citimortgage! If they won't work with people who have a good credit history, I feel sorry for people who have bigger problems than me, and have to jump through the hoops that Citigroup has created to solve a problem created by the banking and mortgage industry. As for me, I'm thinking of mailing them my house keys with a note that says, "You didn't help me. I'm no longer helping you. Welcome to your new Citimortgage home!"
11-11-2008 @ 11:49AM
Ginger said...
I am not sure how all of this is going to play out but it seems that those who are making their mortgage payments on those inflated priced homes will be the ones who lose. If Citigroup is going to adjust mortgage rates for those who cannot pay then they should do something for those of us who are paying.....or perhaps this will be a part of the "spread the wealth" campaign that Obama has begun. Those who are having trouble paying will have lower interest rates and those who are paying will just continue to pay!!!
11-11-2008 @ 12:09PM
Iridium said...
I want to buy a home. I won't if it means I will be paying a higher interest rate and more principal on a home next to someone who just got thier principal and interest reduced.
There is no pointin being responsible anymore. I should just buy ahouse with my good credit then stop paying, blow $20k on my credit cards, stop paying for my car, and then go cry to the FHA. What a great system we have put in place.
11-11-2008 @ 2:34PM
Warren said...
I say throw the bums out on the street ! Let the market find the true prices of real estate, and stop trying to prop up a greatly over priced market. Realistic prices will bring about real buyers and then we can finally clean this mess up.
11-11-2008 @ 4:04PM
David Patterson said...
Have read an array of comments about AIG, their bailout, and the failure of current management. Same for a significant number of other financial institutions.
I've also written to my congressman, John Sarbannes about the need to hold all of these folks accountable for their personal certification of company financial results as required by Sarbannes-Oxley. I never heard a word from him.
Finally, there are now five people about to be sentenced for an AIG reinsurance transaction which disguised balance sheet problems several years ago. Those 5 people - most notably Ron Ferguson, the CEO of General Reinsurance Company (Berkshire Hathaway) are subject to LIFE in prison because their actions caused more than $500 million in investor losses. That's a small fraction of the losses caused by the idiots who ran most of our banking and insurance companies over the last 10 years.
Everybody ought to write to their Senators and Representatives demanding LIFE in prison for every CEO and CFO who signed a Sarbannes-Oxley Certification for any company that is now in the Bail-Out mix. Start with Hank Greenberg and Howie Smith of AIG. Then move to Lehman, Wachovia, Goldman Sachs, Merrill, Bear Sterns, Hartford Insurance Group, etc. And end up with Paulsen when we all figure out that he was at the helm of Goldman during the heyday of dreaming this stuff up.