This excerpt taken from the C 10-Q filed Aug 7, 2009.
Mortgage Modifications and Recent Legislative Actions
Citigroup Mortgage Modification Programs
The Company has instituted a variety of programs to assist borrowers with financial difficulties to stay in their homes. These programs include modifying the original loan terms, reducing interest rates, extending the remaining loan duration and/or waiving a portion of the remaining principal balance. Each borrower's financial situation is evaluated individually. If a borrower meets certain criteria (for example, based on verifiable cash reserves and the level of debt to income), Citi works to develop a modification program suited to the needs of the borrower's situation.
In addition, Citi expects a significant number of loan modifications will be offered under the U.S. Treasury's Home Affordable Modification Program (HAMP), which was rolled out in the second quarter.
During the second quarter of 2009, Citi observed declines in mortgage delinquencies for loans that were delinquent in the 90 day to 179 day bucket. Well over half of these declines were attributable to loss mitigation and modification initiatives that the Company has put in place, including the loan modification programs described above. The future loss rates associated with these loan modification programs (both for those loans that qualify under HAMP and for those made under Citi's loan modification programs) could have an impact on the Company's future delinquency trends and loan loss reserving actions.
Home Affordable Modification Program
On March 4, 2009, the U.S. Treasury (UST) announced details of the Obama administration's Home Affordable Modification Program (HAMP). HAMP is designed to reduce the monthly mortgage payments to a 31% housing debt ratio by lowering the interest rate, extending the term of the loan and forbearing principal of certain eligible borrowers who have defaulted on their mortgages, or who are at risk of imminent default due to economic hardship. In order to be entitled to loan modifications, borrowers must complete a three-month trial period, and must be current at the end of the trial period. During the trial period, the original terms of the loans remain in effect pending final modification.
With respect to interest rate reductions, if the reduced interest rate is equal to or greater than the Freddie Mac Survey Rate at the time of modification, the reduced rate is permanent. If the reduced rate is less than the Freddie Mac Survey Rate at the time of modification, the rate will remain in effect for a period of five years. After five years, the interest rate may increase annually to a rate capped at the Freddie Mac Survey Rate at the time of original modification. The financial impact of interest rate reductions are shared between participating financial institutions, including Citi's wholly-owned subsidiary, CitiMortgage Inc., and the UST.
Under HAMP, investors and servicers of mortgages are entitled to receive certain payments from the UST based on the completion of loan modifications and continued borrower performance under the modified terms. To date, Citi has not recorded any fees under HAMP, as the trial period began in June 2009. During the trial period, the borrower continues to owe interest at the original contractual rate and recognizes interest to the extent permitted under Citi's nonaccrual policy. In addition, the Company does not record charge-offs while the loans are in the trial period if at least one payment under the trial period terms has been made.
The Credit Card Accountability Responsibility and Disclosure Act of 2009
See "CiticorpNorth America Retail Consumer Banking" above for a description of The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) and the potential impact of the CARD Act on Citigroup's credit card businesses.