Citi mulls endorsing bankruptcy reform: sources

WASHINGTON (Reuters) - Citigroup Inc could soon agree to principles that would let troubled borrowers save their homes through bankruptcy, sources familiar with the talks said on Thursday, while industry groups are easing their opposition to the plan.

Senator Richard Durbin, an architect of the plan, is shepherding the discussions with Citigroup Inc. and trying to find terms that would let the nation's third-largest bank support the policy, which is designed to help turn back a wave of foreclosures, said a source familiar with the talks.

Durbin, the Senate's second-ranking Democrat, has also solicited the support of other large lenders and is urging them to endorse a plan that would let bankruptcy judges erase a share of mortgage debt, said other sources familiar with the discussions.

A deal with Citi could be reached as early as early as Thursday afternoon, those sources said, and would likely put increasing pressure on other large banks.

Durbin tried last year to win passage of his proposal, but it failed in the face of opposition from lending and housing groups that warned giving bankruptcy judges power to erase mortgage debt would increase costs for future homeowners.

But as the housing crisis has worsened and the pace of foreclosures has quickened, opponents of the plan have been looking to cut a deal with Democrats, who control Congress and want more aggressive policies to help homeowners.

The National Association of Home Builders has dropped its opposition to the plan and the National Association of Realtors is debating whether to end its opposition.

Still, housing and lending industry leaders hope that they can soften the terms of "mortgage cram-down" to limit its impact.

(Reporting by Patrick Rucker. Editing by Steve Orlofsky)