Citigroup approves of mortgage cram-downs

In a move that could set the stage for other large lenders to follow suit, Citigroup has announced its support of legislation to allow bankruptcy judges to alter the terms of mortgages, including reductions of principal. From a New York Times story:

In a move that would help troubled homeowners, Citigroup agreed to support legislation that would let bankruptcy judges adjust mortgages for at-risk borrowers, leading Congressional Democrats said on Thursday...

Members of the House and Senate said Citigroup had agreed to drop its opposition, providing no future mortgages are covered by the law.Citigroup, which is receiving more than $300 billion in bailout assistance, says that it is open to measures that would help homeowners...

The revised bill that Citigroup endorsed would allow bankruptcy judges to adjust the principal payments or interest rates on existing loans. Judges could also extend the terms on mortgage loans, according to the language of the bill, which would force lenders to take losses without a say in bankruptcy court proceedings...

No other bank has broken ranks with the industry on the proposed bill. Mr. Durbin said he hoped the move by Citigroup, should other banks and financial trade associations take the same stance, would lead to backing by enough Democrats and moderate Republicans to push the bill through.

Click here for full story.