Citigroup to offer help to 500,000 risky mortgage customers

Los Angeles Times, CA
By E. Scott Reckard

The plan is targeted at homeowners who are current on their payments but might be in trouble later. The effort will focus on areas whose home values have fallen, including California.

Citigroup Inc. today plans to announce a six-month program to reach out to 500,000 high-risk mortgage customers who are current on their payments but someday may require loan modifications to stay in their homes.

The New York bank said it would focus on areas with high unemployment and where housing prices have fallen sharply, including California, Arizona, Florida, Michigan, Indiana and Ohio.

Borrowers whose credit ratings have dropped or who exhibit other signs of financial stress may also be contacted, said Mark Rodgers, a spokesman for the bank's mortgage operations.

Citigroup owns about 1.5 million first and second mortgages with a combined balance of $175 billion.

It provides customer service on an additional 5 million mortgages totaling about $600 billion -- loans that have been sold into the secondary market, where investors trade mortgage bonds.

The outreach program initially will focus on Citi-owned loans. It said it was negotiating with investors to apply the program to loans it services.

Consumer advocates point out that although many lenders talk about helping borrowers before they become delinquent, foreclosures have soared nonetheless to levels unseen in the post-World War II era.

While Citigroup's plan appears to be the most ambitious, it remains to be seen what effects it will generate, said Paul Leonard, California director of the Center for Responsible Lending.

"We certainly welcome creative efforts to contact borrowers, particularly before they get into trouble," Leonard said. "But the proof, as they say, is in the pudding."

Citigroup's announcement is the latest by major mortgage lenders beefing up loan modifications to limit the enormous losses they are suffering on foreclosures.

Bank of America Corp. and JPMorgan Chase & Co. recently announced plans to help distressed borrowers, and the Federal Deposit Insurance Corp. has another aggressive plan to modify loans at IndyMac Bank, which failed last summer.

Citi said it recently streamlined its existing loan modification program to make it similar to those plans.

The idea is to reduce the first mortgage payment to no more than 40% of a borrower's pre-tax income by first reducing interest rates, then extending the term of the loan and finally reducing the loan balance.