Citibank 2012 Annual Report Download - page 115

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Whole Loan Sales (principally reflected in Citi Holdings—Local
Consumer Lending)
Citi is exposed to representation and warranty repurchase claims primarily
as a result of its whole loan sales to the GSEs and, to a lesser extent, private
investors through its Consumer business in CitiMortgage. When selling a
loan to these investors, Citi makes various representations and warranties to,
among other things, the following:
•฀ Citi’s ownership of the loan;
•฀ the validity of the lien securing the loan;
•฀ the absence of delinquent taxes or liens against the property securing
the loan;
•฀ the effectiveness of title insurance on the property securing the loan;
•฀ the process used in selecting the loans for inclusion in a transaction;
•฀ the loan’s compliance with any applicable loan criteria established by the
buyer; and
•฀ the loan’s compliance with applicable local, state and federal laws.
To date, the majority of Citi’s repurchases have been due to GSE
repurchase claims and relates to loans originated from 2006 through
2008, which also represent the vintages with the highest loss severity. An
insignificant percentage of repurchases and make-whole payments have
been from vintages pre-2006 and post-2008. Citi attributes this to better credit
performance of these vintages and to the enhanced underwriting standards
implemented beginning in the second half of 2008.
During the period 2006 through 2008, Citi sold a total of approximately
$321 billion of whole loans, substantially all to the GSEs (this amount
has not been adjusted for subsequent borrower repayments of principal,
defaults or repurchase activity to date). The vast majority of these loans
were either originated by Citi or purchased from third-party sellers that Citi
believes would be unlikely to honor back-to-back claims because they are
in bankruptcy, liquidation or financial distress and, thus, are no longer
financially viable. As discussed below, however, Citi’s repurchase reserve
takes into account estimated reimbursements, if any, to be received from
third-party sellers.
Private-Label Residential Mortgage Securitizations
Citi is also exposed to representation and warranty repurchase claims as a
result of mortgage loans sold through private-label residential mortgage
securitizations. These representations were generally made or assigned to the
issuing trust and related to, among other things, the following:
•฀ the absence of fraud on the part of the borrower, the seller or any
appraiser, broker or other party involved in the origination of the
loan (sometimes wholly or partially limited to the knowledge of the
representation provider);
•฀ whether the property securing the loan was occupied by the borrower as
his or her principal residence;
•฀ the loan’s compliance with applicable federal, state and local laws;
•฀ whether the loan was originated in conformity with the originator’s
underwriting guidelines; and
•฀ detailed data concerning the loans that were included on the mortgage
loan schedule.
During the period 2005 through 2008, Citi sold loans into and sponsored
private-label securitizations through both its Consumer business in
CitiMortgage and its legacy S&B business. Citi sold approximately $91 billion
of mortgage loans through private-label securitizations during this period.
CitiMortgage (principally reflected in Citi Holdings—Local
Consumer Lending)
During the period 2005 through 2008, Citi sold approximately $24.6 billion
of loans through private-label mortgage securitization trusts via its
Consumer business in CitiMortgage. These $24.6 billion of securitization
trusts were composed of approximately $15.4 billion in prime trusts and
$9.2 billion in Alt-A trusts, each as classified at issuance.
As of December 31, 2012, approximately $8.7 billion of the $24.6 billion
remained outstanding as a result of repayments of approximately
$14.6 billion and cumulative losses (incurred by the issuing trusts) of
approximately $1.3 billion. The remaining outstanding amount is composed
of approximately $4.4 billion in prime trusts and approximately $4.3 billion
in Alt-A trusts, as classified at issuance. As of December 31, 2012, the
remaining outstanding amount had a 90 days or more delinquency rate
in the aggregate of approximately 15.5%. Similar to the whole loan sales
discussed above, the vast majority of these loans either were originated by
Citi or purchased from third-party sellers that Citi believes would be unlikely
to honor back-to-back claims because they are no longer financially viable.
Citi’s repurchase reserve takes into account estimated reimbursements, if any,
to be received from third-party sellers.