CitiMortgage announced today it will reduce the monthly payments of homeowners who lose their jobs are behind on their mortgages to an average of $500 a month for three months.

The new Homeowner Unemployment Assist initiative is only available for first mortgage loans on a principal residence that conformed to Fannie Mae and Freddie Mac’s limits at the time of origination.

CitiMortgage announced today it will reduce the monthly payments of homeowners who lose their jobs and are behind on their mortgages to an average of $500 a month for three months.

The new Homeowner Unemployment Assist initiative is available only for first mortgage loans on a principal residence that conformed to Fannie Mae and Freddie Mac’s limits at the time of origination.

Borrowers must be 60 days or more behind on their payments or in foreclosure, and cannot participate if they are eligible for a long-term loan-modification using criteria developed by the FDIC and adopted by Citi.

Nevertheless, the company said it expects "thousands of homeowners may be eligible" to participate in the program in the next two years.

Citi said if participating borrowers aren’t employed again within three months, it will work with them on a "case-by-case basis" to "explore the best solutions for the customer." The program may be expanded to include borrowers at earlier stages of delinquency or those who are current on their loans depending on initial results.

The initiative falls under the umbrella of the Citi Homeowner Assistance program, which the company says has helped 440,000 distressed homeowners with mortgage debt totaling $43 billion avoid foreclosure since 2007. Last year, Citi said it was able to avoid foreclosing on four out of five distressed borrowers whose loans it services.

Citigroup Inc. CEO Vikram Pandit last month announced a foreclosure moratorium that is scheduled to end no later than March 12, or before then if the Obama administration finalizes details of a new loan modification program announced Feb. 18 (see story).

Citi has made headlines in recent weeks and seen its share price fall to a little more than $1 over speculation that the company would be nationalized.

For now, the U.S. Treasury is instead participating in a plan that could convert up to $25 billion of the government’s $45 billion stake in Citi from preferred stock into common shares, providing a dollar-for-dollar match when other investors agree to do the same.

The plan does not require additional government investment in Citi, but could leave taxpayers owning up to 36 percent of the company’s common stock and existing shareholders with 26 percent of outstanding shares, the company said today.

Some critics have urged the government to nationalize troubled banks rather than providing additional capital backstops, because, they say, assistance provided through programs like the Troubled Asset Relief Program (TARP) has done little to boost lending.

Last month Citi released a quarterly report on what it’s done — or plans to do — with the $45 billion in TARP funding it’s received so far.

The bank said it had approved $36.5 billion in initiatives backed by TARP capital, including $27.5 billion in prime residential mortgage loans to homebuyers and purchases of mortgage-backed securities in the secondary market.

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