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Citi’s Foreclosure Prevention Plan

Citi’s Foreclosure Prevention Plan

Citigroup and Democrats have been working hard on reaching an agreement that would help homeowners. The two groups finally came to an agreement on January 8, 2009. The proposed legislation would “allow judges to reduce mortgage debt for individuals who have filed for bankruptcy.”

Many Democrats hope that Citigroup’s involvement would encourage other mortgage companies to offer the program. Senator Dick Dubin of Illinois said, “I hope other institutions will follow suit.”

Until now, many mortgage giants have criticized the plan. Mortgage companies have refused to let lawmakers, judges and courts have a ’say’ in mortgage portfolios, practices and policies. Citigroup recently joined the program. But, The Mortgage Bankers Association continues to be opposed to the legislation. “We remain opposed to bankruptcy cram-down legislation because of the destabilizing affect it will have on an already turbulent mortgage market,” said the President and CEO of The Mortgage Bankers Association, John Courson.

Judges would have the ability to “treat the portion of the mortgage balance that exceeds a home’s newly appraised value as unsecured debt” under the legislation. For example, if a couple declares bankruptcy and owes $300,000 on their home , yet the home is only worth $200,000…that $100,000 disparity could potentially be dismissed. Judges would also have the ability and discretion to actually lower someone’s mortgage interest rates and extend the term of the mortgage to as long as 40 years.

Jerry Howard, president of the National Association of Home Builders, said, “This crisis is so severe that every possible solution must be on the table. To be clear, we don’t support any specific legislation that would implement cram downs, but we are willing to discuss this tactic and any other solutions with Congress, the administration and other stakeholders.”

Who would qualify for the proposed legislation? The only people who would qualify would be those who have existing mortgages. Only these people would qualify to get their loans reduced.

Lawmakers hope that the proposed legislation will help relieve the mortgage crisis. The foreclosure plan has been designed to help alleviate the pains of bankruptcy for many homeowners. Citigroup has already agreed to offer the plan to their customers. Soon, many more mortgage giants will begin offering the plan.