Citigroup Bailout May Assist More Homeowners

It's now up to Citi officials to figure out how the bank's existing programs should be changed to accommodate the FDIC plan.

"We look forward to working with the FDIC to coordinate our efforts as we move ahead under our agreement," said Citi spokesman Steve Silverman.

An FDIC spokesman did not return calls for comment yesterday.

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The FDIC's IndyMac program seeks to modify loans so that an eligible borrower is not spending more than 38 percent of his or her monthly income on loan payments. The potential modifications include the reduction of interest rates, extending the term of the loan or "partial principal forbearance" -- setting aside a portion of the loan for the borrower to pay off separately, interest-free, after the rest of the loan has been repaid.

The modifications are being made only when they prove less costly than allowing a homeowner to enter foreclosure.

The FDIC program specifically targets loans that are 60 days delinquent.

Citigroup's modification program for delinquent loans also aims to reduce eligible borrowers' payments to no more than 38 percent of their income through the reduction of interest rates and the extension of the loan terms. Unlike the FDIC, however, Citigroup offers principal forgiveness -- the bank will permanently reduce the amount owed on the loan -- instead of principal forbearance.

But when lowering interest rates, Citigroup generally leaves rates at a minimum of 4 percent while the FDIC has dropped rates as low as 3 percent.

A Citigroup official said that the bank would work to reconcile these differences with the FDIC plan.

One of the major stumbling blocks facing modification efforts has been the proliferation of securitized mortgages -- loans that were bundled into large, complicated investments. When modifying a securitized mortgage, a loan servicer must take care to ensure that the modifications are in compliance with contracts held with the securities' investors.

While Citigroup has worked to modify some securitized mortgages, its loan modifications are generally limited to the mortgages that it owns outright.