Citi backs measure to help avoid foreclosures

By Kevin Drawbaugh and Patrick Rucker

WASHINGTON (Reuters) - Financial giant Citigroup will support a proposal in Congress to rewrite U.S. bankruptcy law to help troubled mortgage borrowers avoid foreclosure, Chief Executive Vikram Pandit said on Thursday.

Citi had previously opposed changing the law to let bankruptcy court judges, in some circumstances, cut mortgage debts to help bankrupt homeowners. Its backing comes amid a recession and a mounting housing market crisis.

"If enacted, this legislation would represent an important step forward," Pandit wrote in a letter to lawmakers who midwifed the plan including Senators Charles Schumer and Richard Durbin.

The letter called the proposal "an additional tool" to help prevent foreclosure.

Schumer of New York, Durbin of Illinois and Sen. Christopher Dodd of Connecticut, all Democrats, said the legal reform would help "millions of families save their homes."

The senators said they hope to attach the bill to a broad economic stimulus package.

A coalition of five consumer groups, including the Centre for Responsible Lending, said: "We welcome the support of Citigroup, one of the nation's largest mortgage lenders, for responsible and urgently needed legislation."

A financial industry group said it still opposes the bill, calling it too broad and a "risk to the mortgage markets."