"Borrowers need to know what options are available to them before they are in a situation of financial distress," said Sanjiv Das, CEO of CitiMortgage. "They should know Citi will modify their loan even before they miss their payments."
Citi expects the program will almost immediately impact nearly 130,000 customers, totaling $20 billion in loans, by assisting borrowers regardless of the type of loan they currently own.
"Ours is not product specific, ours is borrower specific," said Das.
The new initiative from Citi comes as federal and state governments, homeownership preservation groups and other banks - most recently JP Morgan Chase - have launched programs over the past year to help homeowners -- at risk of foreclosure -- stay in their homes in order to shore up the nation's crumbling real estate market.
But Guy Cecala, publisher of the trade publication "Inside Mortgage Finance," cautioned that initiatives like this from CitiMortgage, as well as programs from other banks, look great on paper but often are not that dramatically different from what the banks have already been doing.
"Generally, the numbers they throw out there in terms of expectations are not that different from what they said they would do six months or even a year ago," he said. Cecala pointed out that the announcement from Citi comes a day before congressional hearings that could be critical of the action or inaction by lenders and mortgage services to help struggling homeowners.
"All these initiatives are as much in response to political pressure as they are to lenders responding to rising foreclosures."
Citi's Plan to Help Homeowners
Citi's program is modeled after the FDIC IndyMac modification program. That plan adjusts mortgages for eligible homeowners currently delinquent so their payments are no more than 38 percent of total income. Citi will modify at-risk mortgages to 40 percent.
Citi will adjust loans by reducing the principal owed, extending the term of the loan or reducing the interest rate. In some cases, Das said, the bank could use a combination of these options such as extending the loan to 40 years and then reducing the interest rate to 1 percent for up to two years in order to provide an affordable monthly payment for borrowers so they can stay in their homes.
And unlike other programs including the FDIC IndyMac plan, Citi's will be available not just for homeowners already late making their payments, but for any customers who could be at risk due to circumstances, such as a job loss.
"We will preemptively reach out to help at-risk homeowners before they become delinquent," said Das in a statement, "which is critical to avoiding the loss of a home and protecting their credit score and future borrowing potential."
Citi will redirect 600 employees in the sales force to the counseling center in order to call its customers about the program.
Citi also announced that it will extend its moratorium on foreclosures on mortgages it owns. To qualify, a homeowner has to stay in the home, it has to be the principal residence, the homeowner must work in good faith with Citi and have enough income to pay a more affordable mortgage payment. Citi says it has already saved 370,000 customers from foreclosure in the past two years through this program. Das believes extending the foreclosure moratorium will help an additional 50,000 families avoid foreclosure.
Citi owns nearly $200 billion in mortgages and the 500,000 homeowners it plans to contact represent about $50-55 billion.
The initiative only provides assistance to homeowners whose loans Citi owns and currently does not cover the nearly $600 billion in securitized loans owned by investors for which Citi provides loan services. The bank is currently in talks with investors about how to provide assistance to homeowners whose mortgages have been sold as packaged with other loans and sold to investors.
And therein is a central problem with many of the homeownership preservation programs, according to Cecala. Much of the assistance, even that provided by IndyMac, does not cover loans that have been bundled together and sold to investors. Cecala said approximately 80 percent of subprime loans are securitized as are nearly 75 percent of the "no income verification" loans.
"Unless you come with something to deal with those loans and get investors to cooperate, you are not going to find any solutions," he said.
In other words, many of the bank programs cannot actually help homeowners in trouble. According to Cecala, the hope is that with all these plans being launched, perhaps they will start to make a dent in the growing foreclosure crisis in the country.
