Citi backs foreclosure-prevention plan

By David Ellis
CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Citigroup reached an agreement with Democratic lawmakers Thursday on legislation that would allow judges to reduce mortgage debt for individuals who have filed for bankruptcy.

Sen. Dick Durbin, D-Illinois, the bill's architect, said he hoped the participation of Citigroup would entice other mortgage lenders to sign onto the program.

Until recently, members of the banking industry - including Citigroup and other housing-related groups such as the National Association of Realtors - have criticized the notion of allowing the courts have a say over their mortgage portfolios.

The Mortgage Bankers Association is extremely resistant to this idea.

The trade group insists that so-called "mortgage cram downs," which allow bankruptcy courts to "cram down" or reduce the size of a home loan, will add considerably to borrowing costs for borrowers in the future.