Citibank 2015 Annual Report Download - page 245

227
Mortgage Securitizations
The Company provides a wide range of mortgage loan products to a diverse
customer base. Once originated, the Company often securitizes these loans
through the use of VIEs. These VIEs are funded through the issuance of trust
certificates backed solely by the transferred assets. These certificates have
the same life as the transferred assets. In addition to providing a source of
liquidity and less expensive funding, securitizing these assets also reduces
the Company’s credit exposure to the borrowers. These mortgage loan
securitizations are primarily non-recourse, thereby effectively transferring
the risk of future credit losses to the purchasers of the securities issued
by the trust. However, the Company’s U.S. consumer mortgage business
generally retains the servicing rights and in certain instances retains
investment securities, interest-only strips and residual interests in future
cash flows from the trusts and also provides servicing for a limited number
of ICG securitizations.
The Company securitizes mortgage loans generally through either a
government-sponsored agency, such as Ginnie Mae, Fannie Mae or Freddie
Mac (U.S. agency-sponsored mortgages), or private-label (non-agency-
sponsored mortgages) securitization. The Company is not the primary
beneficiary of its U.S. agency-sponsored mortgage securitizations because
Citigroup does not have the power to direct the activities of the VIE that most
significantly impact the entity’s economic performance. Therefore, Citi does
not consolidate these U.S. agency-sponsored mortgage securitizations.
The Company does not consolidate certain non-agency-sponsored
mortgage securitizations because Citi is either not the servicer with the power
to direct the significant activities of the entity or Citi is the servicer but the
servicing relationship is deemed to be a fiduciary relationship; therefore, Citi
is not deemed to be the primary beneficiary of the entity.
In certain instances, the Company has (i) the power to direct the
activities and (ii) the obligation to either absorb losses or the right to receive
benefits that could be potentially significant to its non-agency-sponsored
mortgage securitizations and, therefore, is the primary beneficiary and thus
consolidates the VIE.
The following tables summarize selected cash flow information related to Citigroup mortgage securitizations:
2015 2014 2013
In billions of dollars
U.S. agency-
sponsored
mortgages
Non-agency-
sponsored
mortgages
Agency- and
non-agency-
sponsored
mortgages
Agency- and
non-agency-
sponsored
mortgages
Proceeds from new securitizations (1) $25.6 $12.1 $39.6 $72.7
Contractual servicing fees received 0.5 — 0.5 0.7
Cash flows received on retained interests and other net cash flows 0.1 — 0.1 0.1
(1) The proceeds from new securitizations in 2015 include $0.7 billion related to personal loan securitizations.
Agency and non-agency securitization gains for the year ended
December 31, 2015 were $150 million and $44 million, respectively.
Agency and non-agency securitization gains for the years ended
December 31, 2014 and 2013 were $267 million and $223 million,
respectively.
Key assumptions used in measuring the fair value of retained interests at the date of sale or securitization of mortgage receivables were as follows:
December 31, 2015
Non-agency-sponsored mortgages (1)
U.S. agency-
sponsored mortgages
Senior
interests
Subordinated
interests
Discount rate 0.0% to 11.3% 2.0% to 3.2% 2.9% to 12.1%
Weighted average discount rate 8.0% 2.9% 5.2%
Constant prepayment rate 5.7% to 34.9% — 2.8% to 8.0%
Weighted average constant prepayment rate 11.7% — 3.5%
Anticipated net credit losses (2) NM 40.0% 38.1% to 92.0%
Weighted average anticipated net credit losses NM 40.0% 70.6%
Weighted average life 3.5 to 10.4 years 2.5 to 9.8 years 8.9 to 12.9 years