Citigroup Inc is in advanced talks with lawmakers on a plan to let bankruptcy judges alter home loans in an effort to prevent US foreclosures, a person briefed on the matter said on Thursday.
Until now, the banking industry has been ardently opposed to the proposal, which key lawmakers aim to attach to president-elect Barack Obama's economic stimulus legislation.
The so-called "cramdown" proposal has been backed by Democrats over the past year as a potential solution to the foreclosure crisis. An announcement on an agreement could come as soon as Thursday, said the person, who spoke on condition of anonymity because the talks were not yet completed.
The discussions, which involved Citigroup officials and the offices of Democratic Senators Richard Durbin, Charles Schumer and Christopher Dodd, focused on a compromise that would limit the proposal to loans made before the bill is signed.
To qualify, borrowers would need to demonstrate that they have exhausted all their options before filing for bankruptcy.
The talks between Citigroup and lawmakers were reported in The Wall Street Journal on Thursday. A Citi spokesman declined to comment.
The lending industry has long battled against the concept. They say that allowing bankruptcy judges to cut the interest rates and reduce what's owed on troubled borrowers' home loans would raise rates because lenders would have to charge more for loans that could be later altered by a judge.
"This would hurt the housing market at the exact time we're trying to stimulate it," Scott Talbott, chief lobbyist at the Financial Services Roundtable, said.
In an interview earlier this week, a lobbyist for the mortgage industry vowed to keep the bankruptcy judge plan out of the economic recovery bill.
"We think that's an unwise move that could delay the stimulus package," said Francis Creighton, the Mortgage Bankers Association's chief lobbyist.
In a speech on Thursday at George Mason University outside Washington, Obama asked Congress to work with him "day and night, on weekends if necessary" to pass an economic revival plan within the next few weeks so that it can be ready for his signature shortly after he takes office on January 20
Obama promised to rewrite financial regulations and pledged to launch "a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes."
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