Citigroup is reducing its mortgage holdings, consolidating mortgage operations and tightening mortgage guidelines.
The New York-based company announced today it would reduce its residential mortgage assets in its U.S. mortgage business by approximately $45 billion over the next 12 months. The actions were prompted by a company wide business review that is still in process.
The move, which is intended to increase focus on higher returns and reduce capital and credit exposure, will leave mortgage assets 20 percent below the level as of December 2007 and will reduce its new mortgage portfolio holdings by half over the next year, the statement said.
Citigroup said it will accomplish the reductions by selling more loans to Fannie Mae and Freddie Mac, securitizing more mortgages and "forcing discipline in sales origination."
"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," the announcement stated. "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."
The consolidation will leave the company with just one leader each for correspondent, wholesale and retail, the statement said. Citi Markets & Banking will play a significant role in determining CitiMortgage products, pricing and distribution activities.
Second mortgage originations have already been reduced, with third-party second lien production down by 90 percent from a year ago, the announcement said. But relationships have been maintained with mortgage brokers who produced profitable, higher-quality volume. Also, loan-to-values have been cut and credit scores have improved on more recent originations while documentation and verification requirements have tightened across all products.
Other underwriting changes at CitiMortgage include the elimination of investor programs on three- and four-unit properties, the curtailing of bulk loan purchases and the prohibition of home equity loans behind lower FICO score first mortgages. The company also eliminated 2/28 and 3/27 hybrid adjustable-rate mortgages.
Within 12 months, the moves are anticipated to save the financial services giant $200 million "on a run rate basis."
Citigroup told employees in January that it merged Citi Residential Lending, formerly known as Argent Mortgage Co., into its CitiMortgage unit. Today's announcement indicated Citi Home Equity will also be merged into that unit.
January's notice indicated that Citibank mortgage loan officers and employees of CitiFinancial were not impacted by the consolidation.
"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," Bill Beckmann, president of the consolidated unit, said in today's release. "At the same time, these changes will enable us to manage the business unit's capital for enhanced returns."
While Citigroup noted staffing levels will reflect "market and economic realities," a spokesman was unable to confirm the number of employees or the specific locations impacted by the consolidation.
The latest actions follow a fourth quarter loss of $9.83 billion, capital injections of $12.5 billion and a $2 billion public offering.
Layoffs from Citi Consolidation Not Yet Known
Layoffs and charges from Citigroup's integration of ACC Capital Holdings' former wholesale unit into its own residential subsidiary are not yet known, but the overhauled operation is expected to handle mortgages from origination to securitization.