Citigroup is banking proposed legislation that would allow homeowners to modify their mortgage loans during bankruptcy. According to the Center for Responsible Lending, the proposed legislation allowing mortgage loan modification in bankruptcy could help 600,000 families avoid foreclosure .

Under the proposed plan allowing mortgage loans modification in bankruptcy, only homeowners with an existing mortgage would be eligible for mortgage loan modification in bankruptcy. Also, the homeowner would have to prove to the bankruptcy court that he/she attempted to modify the mortgage loan with the mortgage lender before filing for bankruptcy.

Citigroup has made a wise decision to back this change in the bankruptcy law. Citigroup, who has been hardest hit by the subprime mortgage loan debacle will greatly benefit from allowing mortgage loans to be modified during bankruptcy.

The alternative for Citigroup would be thousands of foreclosures which would saddle the company with property they would be unable to sell in the current housing market. According to some experts, there is an estimated 8 million homeowners at risk for foreclosure. I wonder what percentage of these homeowners facing foreclosure have mortgages with Citigroup?

I’m sure the number is significant. Massive foreclosures could potentially bankrupt Citigroup sending shockwaves throughout the economy. They’ve made a wise choice indeed.