CitiMortgage announced a deed-in-lieu program for Illinois and five other states Thursday that could allow troubled homeowners to avoid foreclosure and remain in their homes six months for free.

At the end of that time, homeowners would have to sign over the property's deed in return for at least $1,000 in relocation assistance if the properties are kept in good shape. Making mortgage payments during the six-month period is not a condition for participation. As many as 20,000 delinquent homeowners with mortgages owned by CitiMortgage may be eligible for the program. The lender expects 1,000 borrowers to participate.

However, the program will do nothing to help borrowers who are wrestling with not one set of lenders but two. It will not be offered to borrowers who have second mortgages on their properties.

The program "is an important aspect of what's going on in the whole housing cycle," CitiMortgage chief executive Sanjiv Das said in an interview. "The first phase was just helping out and restructuring as many mortgages as we could. This gives us a very humane alternative to people who can't afford to stay in their homes."

The first large-scale pilot program of its kind has three beneficiaries: homeowners, because it buys them some time; neighborhoods, because it keeps homes inhabited; and CitiMortgage, because it would receive properties in better condition and not have to absorb the cost of foreclosing on homes. But the program also signals that the government's yearlong effort to help delinquent borrowers keep their homes is falling short and lenders are taking possession of an increased number of distressed homes.

Das said he hoped other lenders would offer similar programs that would circumvent the drawn-out foreclosure process and lessen the amount of abandoned housing inventor in disrepair.

A pilot of the Citi Foreclosure Alternatives Program locally comes as new data suggest that foreclosures in Illinois, unlike many other parts of the nation, continue to increase.

In January, one in every 291 Illinois homeowners received some sort of foreclosure filing, which include default notices, announcements of a sheriff's sale or bank repossessions, according to RealtyTrac. Last month, almost 7,600 Illinois homeowners received default notices, a lender's first step in the foreclosure process, and almost 6,000 homes were repossessed.

Meanwhile, bank repossessions of homes nationwide dropped 5 percent in January from December, but were still up 31 percent from January 2009. Overall, foreclosure notices dropped 10 percent nationally last month.

Currently, Citi offers deeds-in-lieu of foreclosure to some delinquent borrowers who don't qualify for loan modifications and whose homes do not sell after 90 days. However, they are not allowed to remain in the homes and do not receive relocation counseling.

Under the more formalized program that begins Friday, eligible delinquent homeowners must have their primary mortgage owned by CitiMortgage and must first be considered for a permanent loan modification. If that is not possible, a short sale will be considered. If neither of those alternatives works, the homeowner could stay in the home for up to six months and at the end receive $1,000 in a cash-for-keys transaction. Program participants also would undergo financial counseling.

The program is not being offered to borrowers who have second mortgages on their properties.

CitiMortgage, a major recipient of Troubled Asset Relief Program funds, last month reported one of the better performances among servicers in efforts to modify the mortgages it handles. The lender said of the more than 241,000 mortgages that were at least 60 days delinquent, 47 percent were participating in some loan modification as part of the federal government's Home Affordable Modification Program. However, only 5,000 homeowners had received permanently changed, more affordable loan terms.

By Mary Ellen Podmolik

Source : Chicago Tribune February 11, 2010