November 12th, 2008 8:09 AM by Lehel Szucs
By Rebecca Christie and Elizabeth Hester
Nov. 11 (Bloomberg) -- Mortgage companies Fannie Mae and Freddie Mac and Citigroup Inc. plan to cut home-loan payments for hundreds of thousands of borrowers facing foreclosures, following similar moves by the nation's biggest banks.
Fannie Mae and Freddie Mac will reduce principal or interest rates on some loans and extend the terms of others, according to the Federal Housing Finance Agency, which seized control of Fannie and Freddie in September.
Congress has been urging financial-services companies to work with borrowers after foreclosures rose to the highest on record in the third quarter. JPMorgan Chase & Co., the biggest U.S. bank, said last month it would stop foreclosures on some loans as it works to make payments easier on $110 billion of problem mortgages, while Bank of America Corp. said it has modified 226,000 loans this year.
``If housing doesn't get stabilized, it's really going to continue to bleed the economy,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, Bloomberg's most accurate economic forecaster for 2008.
Citigroup, the fourth-largest U.S. bank by market value, will contact about 500,000 homeowners with $20 billion in mortgages during the next six months, the New York-based company said in a statement today.
Citigroup said it's helped about 370,000 people with $35 billion in mortgages avoid foreclosure since 2007. The bank is trying to help customers stay in their homes, Sanjiv Das, chief executive officer of the mortgage unit, said in the statement. The company's stock fell 41 cents to $10.80 as of 4:09 p.m. in New York Stock Exchange composite trading. Fannie Mae dropped 4 cents to 68 cents and Freddie Mac fell 6 cents to 82 cents.
Citigroup has lost money on its mortgage holdings for six straight quarters, the company said on an Oct. 16 conference call. It restructured more than 120,000 loans, including granting extensions, during the first half of 2008, Chief Financial Officer Gary Crittenden said on the call.
A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on during the third quarter, the most since records began in January 2005, data compiled by RealtyTrac Inc. in Irvine, California, show.
Citigroup said it's ``focusing particularly on borrowers in areas that are likely to face extreme economic distress.''
Home prices in 20 metropolitan areas fell in July at the fastest pace on record, and sales of previously owned homes in August were 32 percent below the peak of September 2005.
Citigroup plans to reach out to loan holders who live in their homes and have ``sufficient income for affordable mortgage payments,'' the statement said. The bank will extend a moratorium on foreclosures to those who meet these criteria.
Freddie spokesman David Palombi didn't return a call for comment and Fannie spokesman Brian Faith declined to comment.
President-elect Barack Obama, in his first news conference last week, called on the Treasury and other government agencies to ``use the substantial authority that they already have to help families avoid foreclosure and stay in their homes.''
Federal Deposit Insurance Corp. Chairman Sheila Bair has proposed a plan to guarantee mortgages to help stem foreclosures, according to two congressional aides briefed on the matter. Her idea is to use as much as $50 billion of the $700 billion financial-services industry bailout package approved by lawmakers.
The JPMorgan program is designed to assist 400,000 families with $70 billion in loans in the next two years. An additional 250,000 families with $40 billion in mortgages have already been helped under existing loan-modification programs.
Bank of America, based in Charlotte, North Carolina, announced two plans this year to help reduce customers' payments by as much as $11 billion. In total, they will cover more than $120 billion in unpaid balances.
Countrywide Financial Corp., the mortgage lender acquired by Bank of America, agreed in October to help about 400,000 customers facing foreclosure or having problems paying their loans as part of settlement with 14 states over fraud complaints.
To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Elizabeth Hester in New York at firstname.lastname@example.org.