T he Wall Street Journal reported today that Citigroup will be offering to modify terms on as much as $20 billion in home loans, a major initiative to stop foreclosure losses. This current effort is being extended to borrowers current on their mortgages but at risk to falling behind due to job loss or a high ratio of loan payment to income. Citi will only be offering this to homeowners whose mortgages they currently hold that haven’t been sold to investors (this is known as warehousing) and is looking to expand this to mortgages it services but doesn’t own.
Of the 500,000 mortgages Citi currently owns, CitiMortgage Chief Executive Sanjiv Das expects about 130,000 of borrowers to be eligible to see their monthly payments reduced. They are actively contacting borrowers to offer loan modifications to people whose monthly payments exceed 40% of their monthly income. Citi expects this ratio to drop as the program begins. The modifications CitiMortgage will be offering include interest rate reductions, extending the term of the loan, and as a last resort, reducing the principle. After three months of testing, Citi has been able to reduce payments an average of 40% .
If you have a mortgage with Citi and are experiencing hardship, contact them immediately since they’re in the mood to negotiate. Modifying your loan before it becomes delinquent will appear as current and not affect your credit rating. This is a positive move for a major lender in correcting our current housing markets without government intervention. While lenders and investors will all be affected by moves like this, hopefully more lenders will see this as a more affordable and long-term, sustainable solution to the housing crisis.
