ORLANDO, Fla. – Nov. 11, 2008 – Saying it will target borrowers in markets likely to face extreme economic distress and further declines in home prices, Citigroup, one of the nation’s largest banks, will expand its foreclosure prevention efforts to include borrowers who are still current on mortgages, the company announced Tuesday.
Up to 500,000 Citi customers are expected to qualify for the new mortgage assistance program. The company estimates about 130,000 homeowners will receive help over the next six months, affecting $20 billion in mortgages. These include homeowners in South Florida.
Citi’s plan will be extended to customers regardless of the type of loan they have, unlike other foreclosure prevention efforts that have sought to stem losses among borrowers with high-risk subprime, adjustable-rate, and negative amortization loans.
Last month, JP Morgan Chase said it was launching a new effort to help more than 300,000 customers avoid foreclosure on $70 billion worth of mortgages and would hold off on filing new foreclosures for 90 days. Citi is indefinitely suspending new and existing foreclosures while it attempts to contact eligible borrowers.
Loan modification plans will include a combination of interest-rate reductions, principal forgiveness or term extensions. The company said it also was working with investors to extend mortgage assistance to loans not owned but serviced by Citi. So far, the bank says it has averted foreclosure for 370,000 customers since the start of 2007.
Citi’s loss mitigation program builds on renewed efforts within the lending industry to more aggressively reach out to at-risk customers amid mounting losses. There also has been increased pressure from congressional leaders resulting from the passage of a $700 billion financial rescue package. Last month, Citi reported a $2.8 billion loss for the third quarter. Reports published Monday said that Citi was likely interested in tapping rescue funds for the purchase of a regional bank.
Sanjiv Das, chief executive of CitiMortgage, said the bank was charting a new path by focusing on customers who are still current.
Rather than responding to the region’s vast number of borrowers who owe more on loans than their homes are worth, Das said the bank would look at the broader economic indicators to target at-risk customers, particularly living in areas hit by job losses and falling home values that exceed the national average. South Florida made that list, Das said.
“This is in response to a lot of borrowers who are current with us, but are likely to default because of some significant change in their economic circumstances,” Das said. “Rather than having them go through the pain of missing a payment or missing several payments and getting into deep delinquency and foreclosure, why don’t we reach out before? That way it doesn’t damage their credit score. It’s the same loan modification at the back end, so why wouldn’t we offer it to them on the front end?” Citi will open several new Borrower Relief Centers with additional staff. The company said its modification model will be patterned after efforts by the FDIC to restructure the loans of IndyMac customers after the bank failed in July.
The IndyMac plan uses a simplified formula that determines payment affordability as 40 percent of a borrower’s income and can include a reduction of the interest rate and principal as well as an extension of the time period over which a loan must be repaid.
Das said some customers would see interest rates reduced to as low as 1 percent for periods up to two years, or enough time to see them through their difficulties.
Citi said eligible customers are those who live in the mortgaged property as their primary residence, work with the company in good faith, and have sufficient income for affordable mortgage payments