Citibank 2014 Annual Report Download - page 97

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North America Consumer Mortgage Lending
Overview
Citi’s North America consumer mortgage portfolio consists of both
residential first mortgages and home equity loans. At December 31, 2014,
Citi’s North America consumer mortgage portfolio was $95.9 billion
(compared to $107.5 billion at December 31, 2013), of which the residential
first mortgage portfolio was $67.8 billion (compared to $75.9 billion at
December 31, 2013), and the home equity loan portfolio was $28.1 billion
(compared to $31.6 billion at December 31, 2013). At December 31,
2014, $34.4 billion of first mortgages was recorded in Citi Holdings, with
the remaining $33.4 billion recorded in Citicorp. At December 31, 2014,
$24.8 billion of home equity loans was recorded in Citi Holdings, with the
remaining $3.3 billion recorded in Citicorp.
Citi’s residential first mortgage portfolio included $5.2 billion of loans
with FHA insurance or Department of Veterans Affairs (VA) guarantees
at December 31, 2014, compared to $7.7 billion at December 31, 2013.
The decline during the year was primarily attributed to approximately
$2.3 billion of mortgage loans with FHA insurance sold and transferred to
held-for-sale, including $0.9 billion during the fourth quarter of 2014. Citi’s
FHA/VA portfolio consists of loans to low-to-moderate-income borrowers
with lower FICO (Fair Isaac Corporation) scores and generally higher
loan-to-value ratios (LTVs). Credit losses on FHA loans are borne by the
sponsoring governmental agency, provided that the insurance terms have not
been rescinded as a result of an origination defect. With respect to VA loans,
the VA establishes a loan-level loss cap, beyond which Citi is liable for loss.
While FHA and VA loans have high delinquency rates, given the insurance
and guarantees, respectively, Citi has experienced negligible credit losses on
these loans.
In addition, Citi’s residential first mortgage portfolio included $0.8 billion
of loans with origination LTVs above 80% that have insurance through
mortgage insurance companies at December 31, 2014, compared to
$1.1 billion at December 31, 2013. At December 31, 2014, the residential
first mortgage portfolio also had $0.6 billion of loans subject to long-term
standby commitments (LTSCs) with U.S. government-sponsored entities
(GSEs) for which Citi has limited exposure to credit losses, compared to
$0.8 billion at December 31, 2013. At December 31, 2014, Citi’s home equity
loan portfolio also included $0.2 billion of loans subject to LTSCs with GSEs,
compared to $0.3 billion at December 31, 2013, for which Citi also has
limited exposure to credit losses. These guarantees and commitments may
be rescinded in the event of loan origination defects. Citi’s allowance for loan
loss calculations takes into consideration the impact of the guarantees and
commitments described above.
As of December 31, 2014, Citi’s North America residential first mortgage
portfolio contained approximately $3.8 billion of adjustable rate mortgages
that are currently required to make a payment consisting of only accrued
interest for the payment period, or an interest-only payment, compared to
$5.0 billion at December 31, 2013. This decline resulted primarily from
repayments, conversions to amortizing loans and loans sold/transferred
to held-for-sale. Residential first mortgages with this payment feature are
primarily to high-credit-quality borrowers who have on average significantly
higher origination and refreshed FICO scores than other loans in the
residential first mortgage portfolio, and have exhibited significantly lower
30+ delinquency rates as compared with residential first mortgages without
this payment feature. As such, Citi does not believe the residential mortgage
loans with this payment feature represent substantially higher risk in
the portfolio.
Citi does not offer option-adjustable rate mortgages/negative-amortizing
mortgage products to its customers. As a result, option-adjustable rate
mortgages/negative-amortizing mortgages represent an insignificant portion
of total balances, since they were acquired only incidentally as part of prior
portfolio and business purchases.