FOR IMMEDIATE RELEASE
Citigroup Inc. (NYSE: C)
March 06, 2008
Citi Strengthens U.S. Residential Mortgage Business
Residential Mortgage Assets to Be Reduced by $45 Billion
Operational Efficiencies Expected to Produce $200 Million in Annual Expense Savings
Strengthening Origination Quality and Underwriting Criteria to Mitigate Losses
Changes Spurred by Business Review Process Underway across Citi
New York – 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.
"Consistent with the key priorities of Citi Chief Executive Vikram Pandit, this end-to-end realignment will create a simplified and streamlined organization that is more sharply focused on clients and able to direct resources to the business lines and customer segments with the highest growth potential," said Bill Beckmann, President of CitiMortgage Inc. "At the same time, these changes will enable us to manage the business unit's capital for enhanced returns."
With these changes, CitiMortgage will remain a leader in origination and servicing and will be well positioned to leverage Citi's capital markets expertise in pricing and distribution. Specifically, CitiMortgage is taking the following actions to strengthen its business:
- Focusing the business on higher returns, reducing the amount of portfolio lending and reducing capital and credit exposure. CitiMortgage intends to increase the level of loans sold to Agencies (e.g., Fannie Mae, Freddie Mac) or securitized to approximately 90% of production by Q3, up from 65% in 2007, and focus on originating and selling the majority of its production for higher returns, further reducing capital and credit exposure and forcing discipline in sales origination.
- Combining all U.S. mortgage businesses into one organization under the CitiMortgage banner. The new CitiMortgage will have a single set of product offerings with coordinated pricing and business practices; a common sales organization with a single leader for each customer segment (e.g., correspondent, wholesale and retail); a consolidated middle office support structure with a common CFO, Credit head and Human Resources lead; and staffing levels that reflect market and economic realities.
- Coordinating non-Agency capital markets activity through Citi Markets & Banking and instituting a joint reporting structure to Global Consumer Group and Citi Markets & Banking to strengthen ties between origination and capital markets. Going forward, Citi Markets & Banking will have a significant role in shaping CitiMortgage's products, as well as its pricing and distribution activities. Citi Markets & Banking will be the primary provider of these services to the consolidated U.S. mortgage business.
- 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.
- 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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Citi
Citi, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Citi's major brand names include Citibank, CitiFinancial, Primerica, Smith Barney, Banamex, and Nikko. Additional information may be found at www.citigroup.com or www.citi.com.