Citigroup to Rescue 500,000 Homeowners NOT in Foreclosure

RescueCitigroup, Inc announced yesterday that it plans to accelerate its Homeowner Assistance Program by reaching out to as many as 500,000 customers who are not in foreclosure, but are at high risk given economic indicators.

These ‘preemptive initiatives’ are designed with loss mitigation in mind. To date, Citi’s efforts to reformulate mortgage loans have prevented as many as 370,000 foreclosures, which would have represented $35 billion in loans over the last eighteen months of the program. For every one foreclosure, renegotiation has prevented four others.

The program is two-fold:

  • Citi will be reaching out to a select group of homeowners who are at risk for potential default, concentrating first in areas where home values are falling but unemployment is high. It’s plan will affect about $20 billion in underlying balances of homeowners facing ‘extreme economic distress’.
  • Citi will extend its moratorium on foreclosures of Citi-owned mortgages on principal residences, as long as the borrower is working with Citi in good faith to find a solution, and has enough income to make a more affordable monthly payment.

Citi is seeking cooperation from other lenders to extend this assistance to those with loans that Citi services, but doesn’t own.

Citi has recently streamlined its existing loan modification program, by applying a simplified formula to determine an affordable payment based on a percentage of the borrower’s gross income, then reducing the monthly payment to that amount by:

  • lowering interest rates
  • extending the term of the loan, or
  • forgiveness of principal.

Efforts to reach out to consumers in need will include online social networks.

Citi reports that it has not suffered the staggering portfolio losses of its competitors, largely because it did not “aggressively introduce non-traditional products”. Citi did not originate negative amortization loans, for instance, and steered clear of option ARMs and other popular subprime loans. Citi did offer some limited ‘hybrid’ ARMs, but based on a more calculated risk.

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