Citigroup Plans to Ease Mortgage Terms for At-Risk Borrowers

Citigroup plans to announce today that it is launching a mortgage-modification program for 500,000 at-risk borrowers in regions facing rising unemployment rates and steep declines in home values.

It comes as a group of lenders is separately preparing a plan to more quickly modify loans. Instead of helping homeowners on a case-by-case basis, that plan would include a streamlined process for getting a more affordable payment for at-risk homeowners already 90 days behind in their payments.

"It is an important step forward for the industry," said Faith Schwartz, executive director of Hope Now, an alliance of lenders that has coordinated much of the industry's response to the foreclosure crisis, including one-by-one loan modifications. "We have all worked hard to look at ways to streamline the process, to reach borrowers at risk and to add to the already substantial efforts that are already underway." She would not discuss the lenders involved or other details of the plan, which is expected to be announced today.

It is unclear how many would be helped by this program, but one industry source familiar with the effort estimates that it could help hundreds of thousands of homeowners by lowering their interest rates or extending the terms of their mortgages and thereby making their monthly payments more affordable.

The Treasury Department and the Federal Housing Finance Agency have been encouraging the process and providing input, the source said. But the plan falls short of what some others in government want.

The industry does not view the new program as a repudiation of its previous efforts, which have mostly been through Hope Now, another industry official said. The group says it has kept 2.5 million borrowers from foreclosure.

A homeowner would have to be 90 days delinquent to qualify for the streamlined program.

In contrast, Citigroup is targeting homeowners current on their loans. It will attempt to modify the terms before the borrower becomes delinquent. "With the unemployment rate rising and rising, more and more borrowers are getting into financial distress because of loss of income," said Sanjiv Das, chief executive of CitiMortgage. "It is a problem the country will face for some time to come, so it is very important to reach out to borrowers before they become delinquent."

Major banks are testing loan-modification programs in the face of political pressure to do more to help struggling homeowners. J.P. Morgan Chase said recently said that it will begin modifying mortgages under a program that could keep 400,000 families in their homes. Bank of America plans to modify an estimated 400,000 subprime loans held by Countrywide Financial, which it recently acquired.

The House Financial Services Committee is scheduled to hold a hearing tomorrow on private-sector mortgage-modification efforts. Meanwhile, the Federal Deposit Insurance Corp. and Treasury Department are continuing to discuss a plan for the government to guarantee mortgages of millions of distressed homeowners if lenders agree to significant loan modifications.

Unlike other modification programs, Citigroup officials said, their program will focus not on whether homeowners have subprime or other risky loans, but instead on whether they are at risk of falling behind because they live in an area with high unemployment or declining home prices. Borrowers could be eligible for an interest rate as low as 3 percent or could have their terms stretched to 40 years to make the payments more affordable. If neither of those options works, Citigroup will consider deferring interest payments on a portion of the principal.

The plan is similar to the program the FDIC launched when it took over failed bank IndyMac, Das said. As in the IndyMac model, Citigroup would rely on a formula to quickly determine who is eligible for a modification. "It almost replicates the IndyMac/FDIC model completely," he said.

But like many loan-modification efforts, Citigroup's program is limited to loans that it owns. The bank must separately obtain permission from investors, who own 4 million loans serviced by the bank, to include those borrowers in the program. "We are in active discussions with investors. We have had a good response from them," Das said.