Citigroup Inc said on Tuesday it will allow some newly unemployed homeowners to temporarily reduce payments on their mortgages.

While Citigroup said thousands of borrowers may be eligible, the program is likely to make only a small dent in the ranks of distressed borrowers as unemployment rises and housing prices extend their declines.

Citigroup's program is limited to people who have mortgages that are owned and serviced by CitiMortgage, and excludes the 4.3 million mortgages that Citigroup services but does not own. Qualified borrowers must live in their homes, and in general must have loans no larger than $417,500.

U.S. President Barack Obama last month outlined a rescue plan that aims to lower monthly mortgage payments for some 9 million borrowers to help restore the housing market's health.

Tuesday's move is Citigroup's latest attempt to ease conditions for borrowers, at the potential cost of near-term profitability, as the government and taxpayers take a growing interest in the New York-based bank's affairs.

Citigroup has received $45 billion of taxpayer money since October, and on Friday got a second government bailout that could boost the U.S. stake in the bank to 36 percent.

The bank lost $27.7 billion last year, and analysts on average expect it to lose money every quarter this year.

In January, Citigroup surprised the banking industry by endorsing legislation that would give bankruptcy court judges broad power to modify the terms of troubled mortgages.

Obama has endorsed such cramdowns as a means to prod mortgage servicers to give borrowers relief.

Citigroup said it will consider expanding the new mortgage relief program to borrowers who are at earlier stages of delinquency, or who are current on their home loans.

(Reporting by Jonathan Stempel; Editing by Derek Caney)