The foreclosure crisis doesn't appear to be going away anytime soon. More than 4 million American homeowners with a mortgage were at least one payment behind on their loans at the end of June, and 500,000 had started the foreclosure process, according to the most recent data from the Mortgage Bankers Association.

While many lenders and banks have been under heavy scrutiny for being too slow to rewrite troubled loans, a recent move by Citigroup may give homeowners on the edge some much-needed breathing room. Citigroup announced late Monday that it won't initiate a foreclosure, or complete a foreclosure sale, on any eligible borrower who seeks to stay in a home if it is the borrower's principal residence, the homeowner is working in good faith with Citi and has sufficient income to make affordable mortgage payments.

In addition to that, according to the Associated Press, "Over the next six months, Citi plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are deemed as potentially needing assistance to keep current with their payments. This represents about one-third of all the mortgages that Citigroup owns, the bank said."

Citigroup's plan of action
Citi plans to devote a team of 600 salespeople to assist in workouts with targeted borrowers by adjusting their rates, reducing principal or increasing the term of the loan.

The bank will initially target homeowners in geographic areas with higher-than-average unemployment and foreclosure rates, primarily in Arizona, California, Florida, Michigan, Ohio and Indiana. The program is expected to affect about $20 billion in mortgages.

Just last month, former U.S. Federal Reserve Chairman Alan Greenspan told Congress that stabilization of U.S. housing markets was a necessary precondition for the economy to heal.

While loans defaults across the country are growing faster than most banks can keep up with, other lenders, including JPMorgan and Bank of America, have recently become more aggressive about modifications to mortgage agreements. Officials from the Treasury Department and the Federal Deposit Insurance Corp. (FDIC) are also working on a new proposal that could help some 3 million homeowners who are behind on their mortgage payments and help keep them in their home. Sheila Bair, the chairwoman of the FDIC, has been the leading proponent of the plan and first discussed the idea publicly in late October.

With the economy possibly slipping into a deep recession, more layoffs are expected. This could open the floodgates to more loan defaults that may aggravate the already-bloated foreclosure market. By taking a proactive approach, Citigroup isn't waiting until it's too late to deal with delinquent borrowers. I think this is a very smart decision on their part, especially if they want to survive this economic tsunami.

Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com.