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The mega-bank Citi has announced plans to get into the rental business. The bank kicked off a great new program this past Wednesday to rent out 500 homes to homeowners who are having difficulty paying their mortgage. Instead of putting the loans into foreclosure and kicking the owners out, the homeowners may be offered the option to rent their own home.
Homeowner advocacy groups have been working with banks and asking them to offer the option to rent to borrowers that are getting close to foreclosure. With Citi being the second largest bank (behind Bank of America as the first), trying the rental program may be the key to helping the foreclosure problem in America.
Dean Baker, an economist who has been lobbying for rental program options says, “It’s another step in the right direction.” Well at least the idea may be however, the problem with this rental program is that Citi isn’t actually renting out any homes because they have already sold their interest in the property to Carrington Capital Management.
The sad fact is that Citi’s appearance of hospitality and humanity may simply boil down to a branding and marketing campaign as a, “Home Rental Program.” Because they no longer have interest in the properties, they also have no control over them so there is no minimum period of time that they previous homeowners would be entitled to lease.
Advocacy groups such as the National community Reinvestment Coalition feel at a minimum Citi should be able to guarantee a minimum lease period for three to five years at a fair price. Without this consideration the benefit appears solely for the mega bank and its investors.
Also, since the mortgages are no longer owned by Citi, those borrowers are no longer eligible to get a mortgage modification under the $25 billion settlement agreement. While Citis investors, such as Carrington, could still decide to modify those loans instead of trying to rent them, it won’t have the incentives that the banks got when signing the AG settlement. So if you are a homeowner that got their loan sold then there may be less of a chance that you will be offered a modification and be able to stay in your home.
Rick Sharga of Carrington, says renting homes is a growing business that it plans on expanding and growing with Citi. “Our objective is to rent out these homes,” says Sharga. “If this works, Citi is inclined to ramp up the program so we would like to get as many people participating as possible.” He goes on to state that in many cases the home owner will be able to rent their home back for significantly less payments than they were required to pay on their mortgage. Ultimately they will come out ahead on the deal.
While renting homes may be an initial benefit for the tenant, the real winner will be the mega banks in the long run as they will be able to get cash flow on the homes now when they are unable to sell them and eventually sell them for a profit once the economy rebounds. The previous homeowner will be forced to find a new place with the new owner take possession.