Citibank 2014 Annual Report Download - page 101

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North America Consumer Mortgage Quarterly Credit
Trends—Net Credit Losses and Delinquencies—Home
Equity Loans
Citi’s home equity loan portfolio consists of both fixed-rate home equity loans
and loans extended under home equity lines of credit. Fixed-rate home equity
loans are fully amortizing. Home equity lines of credit allow for amounts
to be drawn for a period of time with the payment of interest only and then,
at the end of the draw period, the then-outstanding amount is converted to
an amortizing loan (the interest-only payment feature during the revolving
period is standard for this product across the industry). After conversion, the
home equity loans typically have a 20-year amortization period.
Revolving HELOCs
At December 31, 2014, Citi’s home equity loan portfolio of $28.1 billion
included approximately $16.7 billion of home equity lines of credit
(Revolving HELOCs) that are still within their revolving period and have
not commenced amortization, or “reset,” compared to $18.9 billion at
December 31, 2013. The following chart indicates the FICO and combined
loan-to-value (CLTV) characteristics of Citi’s Revolving HELOCs portfolio and
the year in which they reset:
FICO 660+,CLTV>100 FICO<660,CLTV>100 FICO 660+,CLTV>=80<=100 FICO<660,CLTV>=80<=100
FICO 660+,CLTV<80 FICO<660,CLTV<80 %ENR
$6.0
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
2019+201820172016201520142013<2013
$0.4
2.3%
$0.4
2.2% $1.0
5.3%
$3.6
19.4% $4.8
25.6%
$4.6
24.9%
$2.5
13.3%
$1.3
7.0%
North America Home Equity Lines of Credit Amortization—Citigroup
Total ENR by Reset Year
In billions of dollars as of December 31, 2014
Note: Totals may not sum due to rounding.
Approximately 10% of Citi’s total Revolving HELOCs portfolio had
commenced amortization as of December 31, 2014. Of the remaining
Revolving HELOCs portfolio, approximately 78% will commence
amortization during 2015–2017. Before commencing amortization,
Revolving HELOC borrowers are required to pay only interest on their
loans. Upon amortization, these borrowers will be required to pay both
interest, usually at a variable rate, and principal that amortizes typically
over 20 years, rather than the typical 30-year amortization. As a result, Citi’s
customers with Revolving HELOCs that reset could experience “payment
shock” due to the higher required payments on the loans.
While it is not certain what, if any, impact this payment shock could have
on Citi’s delinquency rates and net credit losses, Citi currently estimates that
the monthly loan payment for its Revolving HELOCs that reset during 2015–
2017 could increase on average by approximately $360, or 170%. Increases in
interest rates could further increase these payments given the variable nature
of the interest rates on these loans post-reset. Of the Revolving HELOCs that
will commence amortization during 2015–2017, approximately $1.6 billion,
or 12%, of the loans have a CLTV greater than 100% as of December 31, 2014.
Borrowers’ high loan-to-value positions, as well as the cost and availability
of refinancing options, could limit borrowers’ ability to refinance their
Revolving HELOCs as these loans begin to reset.