Government Rescue Broadens Mortgage Relief at Citi

During the second week of November, Citi unveiled a loss mitigation initiative designed to help some 370,000 borrowers stay in their homes. The effort focused mostly on home loans actually owned by Citi, as opposed to those serviced for third parties.

But that all preceded last week's meltdown in Citi's share price, as investors worried that the huge financial firm - once the nation's largest bank - was teetering close to collapse. The government stepped in with a capital infusion and a promise to protect Citi from losses on some $306 billion of real estate and commercial mortgage securities. As part of that government boost, Citi has formally agreed to follow the FDIC's "template" for home loan loss mitigation.

Under the plan, the government will establish that template for managing guaranteed assets for Citi, and that template is likely to reflect FDIC chairman Sheila Bair's mortgage modification strategy. In taking over IndyMac, the FDIC came up with a plan for managing IndyMac's servicing portfolio that calls for changing the terms of the mortgages - even reducing principal if necessary - to create a fixed-rate home loan with monthly payments that do not exceed 38% of the borrower's gross income. Some have called for pushing the mortgage payment ratio even lower. The rescue calls for Citi to absorb the first $29 billion in losses on the $306 billion pool of assets, with the government picking up 90% of the losses above that amount.

Citi, like most of the industry's largest mortgage servicers, had already embarked on its own modification effort. Citi's homeowner assistance program involves reaching out to 500,000 homeowners who are not currently delinquent but who are deemed at risk of default based on their mortgage product. Citi estimates that this outreach, focused on areas of "extreme economic distress," will lead to about $20 billion of home loan workouts. Citi also extended its foreclosure moratorium on owner occupied homes where Citi owns the mortgage and the homeowner is trying to maintain ownership of the property.

Sanjiv Das, CEO of CitiMortgage, said in a news release that since the beginning of 2007, Citi has helped approximately 370,000 borrowers in its servicing portfolio avoid foreclosure. He said pre-emptively reaching out to borrowers before they go delinquent "is critical to avoiding the loss of a home and protecting their credit score and future borrowing potential."