Citigroup mortgage help may not do much good

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Citigroup Inc.'s (C) lifeline to distressed mortgage holders may wind up sinking them. Under the company's Homeowner Unemployment Assist program, customers who have lost their jobs would be eligible to have their mortgage payments reduced to an average of $500 for three months, which the New York-based bank said is below the average rent for a one-bedroom apartment.

Many details of the program are described in pretty vague terms in Citigroup's press release. For instance, the company said it will "will remain in contact with customers during the three-month period in an effort to sustain an ongoing dialogue while customers work toward long-term employment solutions." Citigroup will try to find the "best solutions" for customers who have not found work after the three months are over, including long-term loan modification.

There are a couple of problems here.

For instance, giving people an additional three months to find a job is not really that generous. Many people who are laid off can expect to spend at least six months to a year in their job search, particularly in hard-hit industries such as financial services. Then there is the issue what Citigroup means by "long-term employment solutions." What if someone gets a temporary job that ends after six months? Will they be eligible for the program a second time or a third one?

Reuters notes that Citigroup's program is limited to people who have mortgages that are owned and serviced by CitiMortgage, and excludes the 4.3 million mortgages that Citigroup services but does not own. What about those people?

The other issue I have with the Citigroup program is more practical. Many of the people being helped probably have adjustable-rate or other types of exotic mortgages that helped them buy homes that they could not otherwise afford. Is the New York-based bank doing these borrowers more harm them good by helping them stay in their homes?

Maybe.

Government data shows that 55 percent of borrowers of modified mortgages re-defaulted again in six months. That's astonishing.

Citigroup and the rest of the banking industry is under huge pressure from the Obama administration, particularly given the billions of taxpayer dollars being doled out to keep them solvent. The government has bailed out Citigroup three times already, including its $25 billion emergency loan that gave Uncle Sam a 36 percent stake in the beleaguered bank

This program seems like a public relations stunt.
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