Citigroup Inc. plans to let homeowners on the verge of foreclosure stay in their homes for six months - if they turn over the deed to their property.
Citi said Thursday it is launching the pilot program, dubbed "Foreclosure Alternatives," this week in Texas, Florida, Illinois, Michigan, New Jersey and Ohio. Initially, about 1,000 homeowners are expected to participate. Citi may expand the program nationwide.
In a normal foreclosure, a lender assumes legal control of the property and evicts the homeowner. But Citi's program, like other "deed in lieu of foreclosure" efforts, allows the homeowner to avoid a completed foreclosure. While the owner must still leave the home after six months, the program results in a less severe hit to the borrower's credit score.
The policy is an attempt to deal with what lenders see as a growing phenomenon: borrowers who choose to default on their mortgages. Close to 1 in every 3 U.S. homeowners owe more on their mortgages than their homes are worth, according to Moody's Economy.com.
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Borrowers in Citi's program will still need to pay their utility bills. But Citi will pay at least $1,000 in relocation costs and will consider helping out with other expenses. Citi also plans to provide relocation counseling.
The program is intended to help borrowers who don't qualify for a mortgage modification or a short sale - one in which the lender agrees to sell a home for less than the total mortgage amount.