Citi Initiates Rental Home Program

On Wednesday, Citigroup, Inc. (C - Analyst Report) introduced a home rental program to allow distressed homeowners rent their homes by signing a deed. This arrangement would act as an alternative to foreclosure.

The home rental program will be managed by the joint venture between Carrington Capital Management LLC and Oaktree Capital Group, LLC (OAK - Snapshot Report). These firms specialize in investing in distressed assets. To initiate this plan, Citigroup has sold mortgage loans worth $158 million to the venture.

The pilot program will be introduced in the states of Arizona, California, Texas, Florida, Nevada and Georgia and will involve about 500 troubled homeowners. This will help homeowners to reside in their homes and avoid eviction.

Under the “deed-in-lieu” of foreclosure, the eligible borrowers will transfer their ownership rights to the venture led by Carrington and Oaktree. For this, the eligible borrowers must owe more than their home is worth and must be delinquent for more than 120 days. Further, borrowers who cannot qualify for loan modification but are able to pay rents at market rates, will be considered for the program.

The suitable candidates need not sign a lease option. Candidates, who prefer the lease option, will be asked to sign a deed-for-lease. This agreement would create a lease on the property and borrowers will be paying a monthly charge on the lease. The charges would be fixed by considering the local market rates and are anticipated to be lower than the current mortgage obligation.

Earlier this year, Bank of America Corporation (BAC - Analyst Report) had announced its ‘Mortgage to Lease’ initiative, allowing the distressed customers (related to foreclosures) to continue staying in their houses while the ownership of their property would be taken over by the bank. BofA had launched the pilot project in the states of Nevada, Arizona and New York and only about 1,000 homeowners became a part of this program.

Citigroup’s efforts will prevent foreclosures and assist in regional development, which will propel national economic recovery. This program will also benefit the overall housing market by stabilizing property prices. In addition, the company stands to gain from lower costs and improved credit quality as its balance sheet will be able to get rid of the delinquent properties.

Citigroup currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.