Citi to offer mortgage relief
Citigroup Inc. on Tuesday promised to cut monthly mortgage payments temporarily to $500 for some homeowners who have been fired or laid off -- a test program bank officials say could become a model for other banks if it proves successful.
The borrowers otherwise would face foreclosure because their lack of income makes it impossible to restructure their loans with more affordable payments. The idea is “to hit the pause button” on loans so they can focus on a job search, said Sanjiv Das, chief executive of subsidiary CitiMortgage.
The low payments would be maintained for three months for customers who live in their homes, are at least 60 days past due on their mortgages, prove they have registered with the state unemployment office and pledge to look for new jobs. Reducing payments longer might be a disincentive to job-seeking, Das said.
Citigroup, the struggling New York financial giant, has received $50 billion in government bailout funds in a series of three transactions expected to give taxpayers 36% ownership of the banking firm.
Like other big mortgage lenders, Citi is attributing an increasing number of soured home loans to the distressed economy and rising unemployment rather than to loans that were unwisely made.
As home prices tumbled, the foibles of low down payment loans made to borrowers with blemished credit were “well recognized,” Das said. “But people who can’t pay because of a job loss are a newly emerging phenomenon.”
The program is available only to borrowers with Citigroup-owned loans of less than $417,000, he said. The bank sold most of its mortgages, so most home financings won’t be eligible, but Das said Citi hoped to persuade loan investors to go along with the program later if it was successful in reducing losses.
Borrowers who obtained their loans through Citigroup’s separate subprime lending subsidiary, CitiFinancial, won’t be eligible at first, Das said.
In addition to slashing payments, the program would suspend interest on the loan temporarily. The $500 a month would first be used to pay taxes and insurance on the property, with extra funds applied to reduce the loan balance. If taxes and insurance totaled more than $500, the borrower would be required to pay them in full, so in some cases the payment could be more than $500, Das said.
Citigroup predicted that thousands of homeowners might be eligible for the program over the next two years, and Das said it could become a model for other banks.
Participants who are still jobless after three months would be counseled one-on-one about their options, Citigroup said. Those who find work could resume regular mortgage payments or, if qualified, might receive a long-term loan modification.
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