Citigroup to support mortgage relief plan

by James Oliphant

Senate leaders will announce Thursday an agreement with Citigroup in which the financial giant will throw its support behind legislation that allows homeowners in bankruptcy to modify the terms of their mortgages.

The provision has been long sought by Democrats as a means to give homeowners who are "underwater"--who owe more money on their homes than they are worth--the means to strike a more favorable deal with banks.

But giving bankruptcy judges the power to "cram down" mortgages has been strongly opposed by congressional Republicans and mortgage lenders, who say that it would make providing loans riskier and, because of that, reduce the amount of credit available to buyers.

The measure was termed a deal-breaker in last fall's $700 billion Wall Street bailout bill and was left out of the final package. But Citigroup's about-face suggests momentum is building to include the mortgage provision in the economic stimulus package under development in Congress.

"This is the breakthrough we've been waiting for," said the bill's sponsor in the Senate, Sen. Dick Durbin (D-Ill.) "They can make a big difference in convincing their fellow institutions to join us."

Durbin, the Senate's assistant minority leader, said the measure is necessary to rapid rise in foreclosures. The number of foreclosures nationwide has quadrupled since the fall of 2007, with more than 8 million homeowners now at the risk of losing their homes.

His bill would allow bankruptcy judges to replace escalating variable interest rates in home loans with fixed rates and would give them the power to extend the timeframe for repayment. But as part of the deal enlisting Citigroup's support, the legislation would apply only to current mortgage-holders. Those who buy homes after the bill's enactment would not be eligible. A similar bill in the House is sponsored by Rep. John Conyers (D-Mich.).

In recent weeks, the powerful National Association of Home Builders has also switched positions to support the bill, another signal that the bloc of industry groups lined up against the legislation is fissuring.

Durbin, along with Sens. Christopher Dodd (D-Conn.) and Charles Schumer (D-N.Y.) are to announce the deal at an afternoon press conference on Capitol Hill.