Citigroup's New FDIC "Mod In A Box" Formula

$346 billion federal bailout funds and asset guarantees made available to the bank

Feb. 4 (Bloomberg) -- Citigroup Inc now has to expand the use of a government mortgage-relief program to meet regulators? demands.

Citigroup will use the Federal Deposit Insurance Corp.'s "mod-in-a-box" loan-modification formula any time it makes long-term changes to a mortgage, the New York-based bank said yesterday in 43-page report. Previously, such efforts were mostly limited to borrowers 60 days past due. The FDIC's formula seeks to prevent foreclosures by reducing mortgage payments.

FDIC Chairman Sheila Bair insisted on Citigroup?s cooperation last November, when the bank sought $20 billion of bailout funds and $301 billion of asset guarantees on top of an earlier $25 billion infusion. President Barack Obama wants more aggressive efforts to stem foreclosures, and may force banks to increase lending when they take government money.

FDIC?s Plan

Bair says the FDIC's loan-modification protocol will help stabilize the housing market and mitigate loan losses. Under the program, unveiled Nov. 20, participating banks and mortgage investors must slash borrowers? payments to as little as 31 percent of their monthly income by reducing interest rates, extending the loan term or deferring principal.

Andrew Gray, an FDIC spokesman, said the program calls for loans to be modified if they're 60 days overdue or a default is "reasonably foreseeable."

"We view the adoption of that protocol as a loss-mitigation technique, because it?s designed to maximize the value of the distressed assets," Gray said.

In the report on lending practices, Citigroup said it was ?adopting the FDIC?s streamlined modification program where the borrower is at least 60 days delinquent or where a long-term modification is appropriate.?