Interest Rate Roundup

Thursday, March 06, 2008

Citigroup slashing mortgage assets by $45 billion, tightening lending standards, taking other steps

From the just-released statement:

"Citi today announced it intends to reduce residential mortgage assets in its U.S. mortgage business by approximately $45 billion over the next 12 months, a 20 percent decrease from December 2007 levels, and will cut the amount of new loans to be held in portfolio by more than 50 percent in the next year. In addition, the company will integrate middle office and support areas to serve both first and second mortgage operations, organize sales channels around customer segments, and strengthen ties with Citi Markets & Banking, which will be the primary provider of capital markets services to its U.S. mortgage business going forward. Citi expects these changes to reduce expenses by approximately $200 million on a run rate basis within 12 months.

"In January, Citi announced the creation of an end-to-end U.S. residential mortgage business that includes origination, servicing and capital markets securitization execution headed by Bill Beckmann.

"As part of that change, Citi will consolidate operations, policies and procedures in its U.S. mortgage business to achieve greater operational efficiency, appropriate alignment of incentives and ensure in-depth, timely understanding of mortgage exposure. In addition, Citi will integrate all residential mortgage operations under the CitiMortgage name, including CitiMortgage, Citi Home Equity and Citi Residential Lending."

A few other key points:

* Citi will increase the level of loans sold to Fannie/Freddie or securitized to 90% of production by Q3 from 65% in 2007.

* Changes in business organization will result in "staffing levels that reflect market and economic realities"

As for lending standards, Citi had the following to say:

It will be "Improving the quality of origination, tightening underwriting criteria and making changes to policy and process to mitigate losses. CitiMortgage already has reduced the volume of second mortgage origination in general and reduced third party second lien loans by over 90% from a year ago, maintaining relationships with only those brokers who produce strong, high-quality and profitable volume. The company has tightened documentation and verification requirements across product mix and strengthened LTV (loan-to-value) requirements in declining markets. These shifts have resulted in higher FICO scores and lower LTVs for newer originations.

And it is "Eliminating a number of higher risk product offerings. CitiMortgage no longer offers mortgage loans for investment properties on three- and four-family homes and has curtailed bulk loan purchases. In addition, the company has eliminated 2/28 and 3/27 ARMS as well as home equity loans behind lower FICO score first mortgages."


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