Citigroup to Cut Mortgage Exposure by $45 Billion

Citigroup said it aims to cut its home loan exposure by $45 billion, reduce risk and save $200 million a year in an overhaul of its U.S. residential mortgage business.

The largest U.S. bank, which suffered a $9.83 billion fourth-quarter loss tied largely to mortgages, also plans to fold its Citi Home Equity and Citi Residential Lending businesses into its existing CitiMortgage Inc unit.

Mary Altaffer / AP

New York-based Citigroup and other lenders nationwide have been curbing mortgage risk as the housing slump deepens and credit markets tighten, weighing on profitability and share prices. Merrill Lynch on Wednesday announced plans to shut down its subprime mortgage unit, cutting 650 jobs.

Citigroup plans to reduce by about one-fifth over the next year its roughly $213 billion U.S. consumer mortgage portfolio, largely by running off existing loans.

It also plans by the third quarter to sell to Fannie Mae  and Freddie Mac, or package into securities, 90 percent of home loans it makes, up from 65 percent in 2007.

Citigroup will also further tighten underwriting, though it will still offer subprime mortgages and home equity loans, unlike rivals that have stopped as default rates soared.

Savings will result from an unspecified number of job cuts, the consolidation of technology and operating platforms, and combining sales staff, CitiMortgage President Bill Beckmann said. The mortgage units employ about 13,000 people, he said.

"Within the mortgage business, it just makes sense," Beckmann said in an interview, referring to the changes. "The subprime and home equity markets have contracted. Now is an ideal time to put the lending businesses together, refocus on home loans we can sell and streamline the overall business."

The changes come as Chief Executive Vikram Pandit reviews operations throughout the bank in an attempt to cut costs and boost earnings. The bank's shares have fallen by about three-fifths from their 52-week high on May 23.

Citigroup is the fourth-largest U.S. mortgage lender, having made $198 billion of home loans in 2007, according to the newsletter Inside Mortgage Finance.

Its largest mortgage lending rivals include Countrywide Financial Corp, Wells Fargo, JPMorgan
Chase & Co and Bank of America Corp. The latter agreed in January to buy Countrywide.

According to its annual report, Citigroup ended 2007 with $150 billion of first mortgages and $63 billion of second mortgages, including home equity loans, on its books.

About half the loans are in California, New York, Florida, Illinois and Texas, with 27 percent in California alone.

While companies such as Countrywide have stopped or curtailed subprime and home equity loans, Citigroup said it still sees demand for both products. Still, Beckmann said housing prices may not start to recover before late this year.

Beckmann, 47, was tapped in January to oversee a new U.S. residential mortgage business combining origination, servicing and capital markets activities.

Citi Residential Lending was created when Citigroup and then-chief executive Charles Prince last year bought remnants of subprime lender ACC Capital Holdings Corp, the parent of
Ameriquest Mortgage Co and Argent Mortgage Co.

The bank's fourth-quarter loss included an $18.1 billion write-down largely for subprime mortgages and collateralized debt obligations.

Merrill Lynch analyst Guy Moszkowski this week said the bank could face another $15 billion write-down this quarter.

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