Citibank 2012 Annual Report Download - page 256

234
In millions of dollars at December 31, 2012
U.S. agency-sponsored
mortgages
Non-agency-sponsored mortgages (1)
Senior interests Subordinated interests
Carrying value of retained interests $ 618 $ 39 $16
Discount rates
Adverse change of 10% $ (22) $ — $ (1)
Adverse change of 20% (42) (1) (2)
Constant prepayment rate
Adverse change of 10% (57) (3) —
Adverse change of 20% (109) (7) (1)
Anticipated net credit losses
Adverse change of 10% (32) (9) (2)
Adverse change of 20% (64) (19) (4)
(1) Disclosure of non-agency-sponsored mortgages as senior and subordinated interests is indicative of the interests’ position in the capital structure of the securitization.
Mortgage Servicing Rights
In connection with the securitization of mortgage loans, the Company’s
U.S. Consumer mortgage business generally retains the servicing rights,
which entitle the Company to a future stream of cash flows based on the
outstanding principal balances of the loans and the contractual servicing
fee. Failure to service the loans in accordance with contractual requirements
may lead to a termination of the servicing rights and the loss of future
servicing fees.
The fair value of capitalized mortgage servicing rights (MSRs) was
$1.9 billion and $2.6 billion at December 31, 2012 and 2011, respectively.
The MSRs correspond to principal loan balances of $325 billion and
$401 billion as of December 31, 2012 and 2011, respectively. The following
table summarizes the changes in capitalized MSRs for the years ended
December 31, 2012 and 2011:
In millions of dollars 2012 2011
Balance, beginning of year $2,569 $ 4,554
Originations 423 611
Changes in fair value of MSRs due to changes
in inputs and assumptions (198) (1,210)
Other changes (1) (852) (1,174)
Sale of MSRs —(212)
Balance, end of year $1,942 $ 2,569
(1) Represents changes due to customer payments and passage of time.
The fair value of the MSRs is primarily affected by changes in
prepayments of mortgages that result from shifts in mortgage interest rates.
In managing this risk, the Company economically hedges a significant
portion of the value of its MSRs through the use of interest rate derivative
contracts, forward purchase and sale commitments of mortgage-backed
securities and purchased securities classified as Trading account assets.
The Company receives fees during the course of servicing previously
securitized mortgages. The amounts of these fees for the years ended
December 31, 2012, 2011 and 2010 were as follows:
In millions of dollars 2012 2011 2010
Servicing fees $ 990 $1,170 $1,356
Late fees 65 76 87
Ancillary fees 122 130 214
Total MSR fees $1,177 $1,376 $1,657
These fees are classified in the Consolidated Statement of Income as
Other revenue.
Re-securitizations
The Company engages in re-securitization transactions in which debt
securities are transferred to a VIE in exchange for new beneficial interests.
During the year ended December 31, 2012, Citi transferred non-agency
(private-label) securities with an original par value of approximately
$1.5 billion to re-securitization entities. These securities are backed by
either residential or commercial mortgages and are often structured on
behalf of clients. As of December 31, 2012, the fair value of Citi-retained
interests in private-label re-securitization transactions structured by Citi
totaled approximately $380 million ($128 million of which relates to re-
securitization transactions executed in 2012) and are recorded in Trading
account assets. Of this amount, approximately $11 million and $369 million
related to senior and subordinated beneficial interests, respectively. The
original par value of private-label re-securitization transactions in which
Citi holds a retained interest as of December 31, 2012 was approximately
$7.1 billion.