Citi Takes Big Step Back in Mortgage Market

March 6, 2008 No Comments »

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Citi said today that it plans to reduce its residential mortgage assets by a whopping $45 billion within the next 12 months while cutting the amount of new loans to be held in its portfolio by more than 50 percent.

The flagging bank also plans to integrate virtually all aspects of its U.S. mortgage operations under the CitiMortgage brand, moves the company believes will lead to roughly $200 million in annual savings to free up much needed capital.

CitiMortgage, Citi Home Equity and Citi Residential Lending will all fall under this umbrella, offering a single set of loan programs and “staffing levels that reflect market and economic realities.”

Not sure how many layoffs that equates to, but it’s sure to be several hundred if not more given the sheer size of their operations.

“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., in a statement.

“At the same time, these changes will enable us to manage the business unit’s capital for enhanced returns.”

Additionally, the New York-based bank and mortgage lender said it would cut back on portfolio lending dramatically, with plans to increase agency-backed lending to 90 percent of production by the third quarter, up from 65 percent in 2007.

Citi also intends to make sure its capital markets unit Citi Markets & Banking has a large hand in determining which products and pricing are available to consumers, perhaps to avoid any snafus this time around.

To that effect, the loan origination process will also be revamped to ensure higher loan quality, with pullbacks in areas like second mortgage lending, higher fico score requirements, lower maximum loan-to-value ratios, and more direct-to-consumer lending (bye mortgage brokers).

CitiMortgage already reduced third party second-lien lending by more than 90 percent from a year ago, and said it will only work with top quality (profitable) brokers.

The mortgage unit has also stamped out loans on 3-4 unit investment properties, eliminated short-term adjustable-rate mortgages, and ditched home equity loans for borrowers with poor credit.

Shares of Citi fell 98 cents, or 4.42 percent, to $21.17, hitting a fresh 52-week low during the session.

(photo: dogbomb)

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