CHESSNOID

The stock market has been getting  inundated with bad news day after day.  Numerous layoffs of substantial numbers, lower earnings, and new companies asking for a bailout (GM may literally hanging by a thread) are all regular headlines.  These are the dominoes that have fallen from just over a year ago when the housing bubble burst and foreclosures started to mount.  We are still getting record number of foreclosures literally everyday.

Today, the banks seem to be following the FDIC Sheila Blairs’ lead when she took over Indymac and started to modify the loans on the books.  Citibank seems to be the first major bank to do this on its own and I think for good reason.

Citigroup imposing foreclosure moratorium

Published: November 11, 2008

NEW YORK (AP) – Citigroup says it is imposing a moratorium on most foreclosures. It’s part of a series of initiatives aimed at helping at-risk
borrowers remain in their homes. It makes Citi the latest big bank to announce sweeping efforts to try to curtail losses from souring mortgages.
Citi said late Monday it won’t initiate a foreclosure or complete a foreclosure sale on any eligible borrower who seeks to
stay in a home. The home needs to be the borrower’s principal residence, the homeowner would have to be working in good faith
with Citi and have sufficient income to make affordable mortgage payments.
Citi said it is also working to expand the program to include mortgages the bank services but does not own.

They aren’t doing it for good will, but simply watching out for their bottom line. I have always thought from the beginning of this housing crisis they have been understating their true exposure to the number of foreclosures. That is why every quarter their losses are always “surprisingly worse” than expected. If they let these homes go to foreclosure they will have to realize the full write off on their books. They don’t want to that and have their stock hammered further into the ground. They should have done this in the beginning when it would of had a bigger impact.

I know it is too late to go back in time and change things, but what they could do now instead of later is changed every one’s loan terms. What I mean is not just the people underwater and ready to be foreclosed on, but everyone including the loans that are current and never paid late. These will be the next part of the portfolio that will throw their hands in the air when they see the borrowers defaulting getting rewarded with better terms all the while the value of their home is declining. That is basically incentive from an investment point of view to walk away from the property.