Citigroup announced it has executed agreements that will accelerate the transformation of the U.S. mortgage business by effectively exiting servicing operations by the end of 2018 to intensify focus on originations. The strategic action is intended to simplify CitiMortgage's operations, reduce expenses, and improve returns on capital.
Citi has signed a definitive agreement to sell its mortgage servicing rights, and the related servicing, on approximately 780,000 Fannie Mae and Freddie Mac loans of non-Citibank retail customers with outstanding balances of approximately $97 billion to New Residential Mortgage LLC (NRZ). The sale, subject to the approval of both agencies and the FHFA, is expected to be completed in the first half of 2017.
In addition, Citi has entered into a subservicing agreement with Cenlar FSB for the remaining Citi-owned loans and certain other mortgage servicing rights not sold to NRZ. Loan servicing on these assets are expected to be transferred to Cenlar beginning in 2018. As part of its assumption of the servicing obligations, Cenlar will provide core operations, customer service and default operations. Loans of Citi's retail banking clients will be retained by Citi but will be included in the subservicing contract.
"Over the past several years, we have made significant progress transforming our business to deliver a sustainable annuity of growth," said CD Davies, President and CEO of CitiMortgage. "CitiMortgage remains a critical part of serving our customers, deepening relationships with existing and prospective retail bank clients and driving growth in our core markets. We will continue to originate loans for current and new clients."
Citi will work to ensure a smooth transition in the servicing of these loans for affected clients and is working to transfer as many employees as possible along with the mortgage servicing rights and operations.
These transactions are expected to negatively impact pre-tax results by approximately $400 million, including a loss on sale and certain related transaction costs, in the first quarter of 2017. Excluding these items, these transactions are expected to have a minimal impact on operating revenues in 2017, with expense benefits beginning to accrue in 2018 as servicing is transferred to Cenlar and fully realized in 2019.
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides 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, transaction services, and wealth management.
Additional information may be found at www.citigroup.com | Twitter: @Citi | YouTube: www.youtube.com/citi | Blog: http://blog.citigroup.com | Facebook: www.facebook.com/citi | LinkedIn: www.linkedin.com/company/citi.
Certain statements in this release, including without limitation the expected timing of the sale and transfers discussed above as well as the anticipated impact to Citi's results of operations, are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. These statements are not guarantees of future results or occurrences. Actual results may differ materially from those included in these statements due to a variety of factors, including the precautionary statements included in this release, the final financial and accounting analysis of the transactions discussed, and the factors contained in Citigroup's filings with the U.S. Securities and Exchange Commission, including without limitation the "Risk Factors" section of Citigroup's 2015 Annual Report on Form 10-K. Any forward-looking statements made by or on behalf of Citigroup speak only as to the date they are made, and Citigroup does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.