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In a move that would help troubled house, Citigroup agreed to support legislation that would let bankruptcy judges adjust mortgages for at-risk borrowers, leading Congressional Democrats said on Thursday.
The financial industry lobbyists, however, said the plan was flawed and promised to fight legislation aimed to facilitate houses facing foreclosure.
Members of the House and Senate said Citigroup had agreed to waive the opposition, which gives future mortgages are not regulated by law.
Citigroup, which received more than 300 billion dollars in bailout aid, said it is open to measures that would help the case.
“Citi shares this legislation aims to help distressed borrowers remain in their homes, and that this will serve as an additional tool to extensive retention programs at home, currently in place to help at-risk borrowers, Vikram S . schoolteacher, chief executive of Citigroup, wrote in a letter released Thursday night.
Revised draft law which would allow Citigroup approved bankruptcy judges to adjust or principal payments on the interest rate existing credits.
Judges could also extend the terms on mortgage loans, depending on the language of the bill, which would force creditors to take losses without a say in the bankruptcy court proceedings.
Senator Richard J. Durbin of Illinois, the No. 2 Senate Democrat, said he and colleagues plan to see the gallery as a way to create more voluntary negotiations struggle between houses and financial institutions. To date, voluntary programs have proved ineffective, said Democrats.

Citigroup has been part of the Bankruptcy Coalition financial services roundtable, an industry group, not as aggressively lobbied for changes to the Bankruptcy Code in 2005.

Coalition - a group of major trade associations and lenders as Bank of America, JPMorgan Chase and Wells Fargo - also fought to block the so-called cramdown legislation last year.

No other bank has broken ranks with the industry on the proposed bill. Mr. Durbin said he hopes the move by Citigroup, should banks and other financial trade associations take the same attitude would lead to support by enough Democrats and moderate Republicans to push through the bill.

Senator Charles E. Schumer, Democrat of New York, said he was contacting top officials of financial institutions for months, trying to convince him that it would be to their advantage to back the plan because it could help stabilize the housing market, which has severely hurt the economy.

Three changes were made to legislation sponsored by Mr. Durbin and Representative John Conyers Jr., Democrat of Michigan and chairman of the House Judiciary Committee: only existing mortgages will be eligible; homes will have to certify that he tried to contact the mortgage holder creditors regard to changes in the loan before filing for bankruptcy, and only major violations of the Truth in Lending Act will cause lenders to hold their claims in a bankruptcy.

Supported by the bankers and other financial groups, many congressional Republicans and some Democrats have balked at the plan in bankruptcy judges to amend the terms of mortgages on primary residences, saying that would lead to mortgage costs.

But officials of financial institutions have said comes to the conclusion that it might be better to get a discount for payment in a bankruptcy or loan voluntary negotiation than to get money at all.

Aid Senator Richard C. Shelby of Alabama, the senior Republican on the Senate banking committee, said he had no immediate response to the plan.

Scott E. Talbott, Senior Vice President for Government Affairs roundtable on financial services, said the group opposed cramdown legislation that “creates enormous risks” from the mortgage market.

He proposed a draft law would force banks to limit lending and absorb huge losses as the economy worsens. He also suggested the bill would create perverse incentives that might encourage more homes to seek bankruptcy protection.

Citigroup recently began negotiations with lawmakers, in a move that some observers suggest reflects his desire to win favor on Capitol Hill after receiving billions in funds from the bailout.

The government invested 45 billion U.S. dollars in Citigroup and agreed to guarantee about 269 billion dollars in mortgage very illiquid investment.

“If you’re looking at a way to get to the bottom of the economic problems of our country, it is because our economic problems,” said Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee. “The housing foreclosure problem. We came to that.”

The plan was supported by members of Congress who see it as a way to help distressed houses and balance the federal relief efforts were aimed at Wall Street and the automotive industry.

Mr. Schumer said he had been in contact with other major banks and expected it would soon announce their support or at least drop opposition to the plan.