WASHINGTON – Citigroup, one of the nation’s largest lenders, Thursday agreed to abandon its long-standing opposition to a plan to permit bankruptcy judges to modify the terms of mortgages, a move that could help millions of distressed borrowers stay in their homes, Senate Democratic leaders said Thursday.
The startling turnaround reflects the changed political and economic realities of the nation’s deepening recession.
Citigroup’s approval puts pressure on other lenders, potentially opening a new and more aggressive chapter in the government’s foreclosure-prevention effort by giving some of the most troubled borrowers leverage to force lenders to forgive debt.
Democratic lawmakers praised the agreement as a breakthrough and pledged to add the measure to the economic stimulus package moving through Congress.
Although the support of the banking industry would not guarantee passage, they said, it would go a long way toward breaking down opposition among Republicans and moderate Democrats who torpedoed the idea in the Senate last year.
Industry officials fought off the legislation, but the political calculations have changed. President-elect Barack Obama has said he supports the change. Democrats have a larger majority in Congress, and banks that have accepted federal aid are facing pressure to do more to help homeowners.