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Citigroup Ties Up with Large Banks to Alleviate Foreclosure Crisis

By kevin | November 17, 2008

American homeowners heading for foreclosure may put their hopes on a new project designed by Citigroup. The company has joined forces with Federal Deposit Insurance Corporation (FDIC), Morgan Stanley Chase, and other large banks to help mitigate property foreclosure problems hounding single families.

Associated Press says that there are over 4 million U.S. homeowners who are behind on loan payments since June, while 500, 000 are facing foreclosure. For now, Citibank’s aggressive scheme is available only to borrowers with Citigroup-owned loans. Areas such as Arizona, California, Florida, Indiana, Michigan, and Ohio are prioritized since these regions were hit hardest by the housing crisis and unemployment.

Citibank, with the 600-odd employees working on the project, is looking towards more far-reaching effects in the future. For the next six months, the company will contact around a half-million owners, or roughly a third of the bank’s borrowers, who are in danger of falling behind on their payments.

The crux of Citibank’s restructuring plan will be the placing of a moratorium on both legal processes filed against homeowners and the initiation of new foreclosures. The moratorium will be applicable to homeowners with mortgage loans owned by Citigroup provided that:

  • The borrowers are willing to stay in their homes,
  • they cooperate with the bank with regard to their problem, and
  • they have the needed income to make payments on a restructured scheme to pay the mortgage

Under the restructured mortgage scheme, borrowers may avail of the following benefits:

  • reduction of the loan principal,
  • extension of the amortization period, and/or
  • adjustment of the interest rates

The plan comes following Citigroup’s huge losses in the preceding four quarters, even more than its rival companies. Last Monday, Citigroup stocks closed at $11.05, only a little above the bank’s lowest in 52 weeks. This is in sharp contrast to its $55 stock range last spring 2006.

Ultimately, projects such as these are more beneficial for the banks when one looks at the long term benefits. Preventing foreclosure is less expensive than the processes a bank has to go through in order to manage the repossessed properties.

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