Over the past few months, I’ve written several times about what its going to take to fully emerge from the housing bust. While there is no way to read the future and tell what will work and what wont work, it’s clear that something had to be done. With equity completely eroded from many owners homes, the options are limited.
Back in March we told you about Bank of America’s REO Rental Program. In this post, I told you that if Bank of America was successful, other large banks would follow suit. This prediction is now a reality.
Citi and Carrington Capital Management are now unrolling a similar program to 500 homeowners in California, and a few other states. Citi acknowledged some of my initial concerns about the program as a whole confirming that “as a financial institution, managing a program of this nature is not within our area of expertise.” So they partnered with Carrington Capital Management and its subsidiary Carrington Mortgage Services, a firm with real estate and mortgage experience.
As long as strategic partnerships like this can be formed, profitably, these REO rental programs could be the new preferred solution for banks and distressed homeowners; further reducing the REO and Short Sale inventory. It’s the closest to a win-win situation that seems to be available right now. Families get to stay in the homes (although not as owners) and reduce their payments dramatically. Banks get to start receiving regular monthly payments.
Regular monthly payments can be structured just like the original mortgages were and are therefore easier to invest in. Investors will likely be able to pay portions of these regular monthly payments in the form of investment securities.
The toughest part is to try to predict how much it will actually cost to manage all these assets. The Citi-Carrington relationship works well because each group brings something to the program. Citi has millions of homes and Carrington has the ability to service them.
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