From the Wall Street Journal:
Citigroup Feels Heat To Modify Mortgages
Nonprofit Groups Press For Subprime Relief; Deciding Who Gets Help
By LAURIE P. COHEN
November 26, 2007; Page A1
Paulo Perez, a graphic artist, hasn’t made payments in months on the $330,000 mortgage on his ranch house in La Puente, Calif. It fell to Citigroup Inc.’s mortgage-servicing unit to decide what to do about that.
After Citigroup moved to foreclose on him, Mr. Perez, who is 28 years old, asked the financial giant to cut his monthly payments to a level he can afford. Citigroup representatives eventually said no, offering him a less appealing suggestion: Sell your house, turn over the proceeds, and we won’t go after you for any unpaid balance.
On the front lines of the great American mortgage workout, tens of thousands of borrowers are in trouble and looking for relief. Washington has offered advice about what lenders should do, and influential groups that counsel low-income borrowers are ratcheting up pressure on Citigroup and others to offer struggling homeowners more favorable terms on their existing loans — even borrowers whose finances seem hopeless.
In many ways, the pressures Citigroup faces mirror those on other mortgage servicers, whose job it is to collect monthly payments and pass them on to mortgage investors. Servicers are responsible for protecting the financial interests of those investors. But they also have become targets for criticism that the mortgage industry isn’t doing enough to clean up problems arising from years of careless lending to subprime borrowers with shaky credit.
Citigroup, however, may have a bigger mess on its hands than many. In September, as the U.S. housing crisis deepened, it bought servicing rights to a problematic $45 billion mortgage portfolio. It announced a commitment to “help distressed borrowers remain in their homes,” working with Acorn Housing Corp., a nonprofit group that counsels low- and moderate-income home buyers. But with 46,000 borrowers already in default, Citigroup is struggling with the magnitude of the portfolio’s problems, and its relations with Acorn are fraying.
Acorn and other nonprofit community groups contend that mortgage servicers have no right to play hardball with borrowers. Subprime lenders, these groups say, talked customers into loans they couldn’t afford by encouraging them to overstate their incomes and by basing the loans on inflated appraisals. Anyone with steady enough income to make regular monthly payments should get a restructured mortgage, the groups argue.
On the other hand, Douglas Duncan, chief economist for the Mortgage Bankers Association, argues that lenders aren’t the only ones to blame for the subprime-lending debacle. Among the many culpable parties, he says, are the borrowers who didn’t follow through on their obligations.
Of the 280,000 loans in the portfolio, 16.4%, or 46,000, were in default as of Sept. 30, meaning borrowers were at least two months late making payments. About 14,000 of those delinquent borrowers faced foreclosure. Nationwide, 14.8% of subprime borrowers were in default as of June 30, according to the latest figures from the Mortgage Bankers Association, a trade group.
In Granada Hills, Calif., Natalie Brandon is fighting to keep the three-bedroom ranch house she bought in 1985 for $105,000. Mrs. Brandon, 51, does medical billing for doctors; her husband is a dispatcher for a local gas utility. Last year, she got a $625,500 mortgage from Argent, now owned by Citigroup. Her 7.99% interest rate isn’t set to rise until next June, but she already is behind on payments.
Over the past five years, she has refinanced her home five times, each time taking out cash and paying prepayment penalties. Last year, all she had to do to refinance was state that she and her husband earned a combined $100,000. She says she used the proceeds to pay off $30,000 owed on her white Lexus.
This year, she says, their income fell after she suffered a short-term disability. Mrs. Brandon figures if she sold her home today, she wouldn’t get more than $450,000 — what a nearby home sold for in foreclosure.