NEWS

Jobless Catch A Break At CitiMortgage

Date: Mar. 3rd, 2009
Contact: Maurna Desmond

Mortgages

Jobless Catch A Break At CitiMortgage

Maurna Desmond, 03.03.09, 04:22 PM EST

The day before Obama fleshes out his foreclosure plan, Citigroup unveils a temporary program to help out-of-work homeowners.

Citigroup has the first mortgage relief proposal that focuses on unemployment, possibly foreshadowing a shift in the federal government's strategy from helping borrowers who are in over their heads to helping borrowers who are down on their luck.

So far policymakers have been mum on helping unemployed borrowers, but in mid-February Federal Reserve Governor Elizabeth Duke mentioned a plan, put together by Boston Federal Reserve staffers, in which taxpayers would cover half of a jobless borrower's mortgage for up to two years while they looked for another job. (See "America's New Housing Problem: Unemployment.")

CitiMortgage, the mortgage subsidiary of Citigroup (nyse: C - news - people ), announced a program Tuesday that allows newly laid-off borrowers to pay a substantially reduced mortgage, around $500 a month, for three months while they hunt for a new job. Only mortgages below the $417,500 threshold qualify. After 90 days, borrowers still in the program will be dealt with on a "case by case basis." Those who have secured work could either résumé their original payments or, if eligible, receive a long-term loan modification.

Sanjiv Das, chief executive of CitiMortgage, said in a phone interview that unemployment-related defaults have been a growing concern as the labor situation deteriorates. He expects unemployment to be a fundamental driver of foreclosures in 2009. Das says he hopes other banks and lenders come out with similar programs.

While Citi insists it acted alone, its new initiative comes one day before the Obama administration is scheduled to detail its $75 billion plan to fight foreclosures. The initiative already has plenty of sweeteners to get lenders, servicers and borrowers to rework mortgages until they are affordable.

Many fundamental questions remain unanswered, however, including whether mortgage servicing companies will be protected from lawsuits if they change the terms of the original loans without the consent of mortgage securities investors.

Citi has been one of the few major lenders to support the politically charged idea of mortgage modifications, or so-called "cram downs," that would allow loan terms to be rewritten to halt foreclosure.