Story summarized from American Banker
The
new CitiMortgage — Prime and subprime
together
Monday,
July 31, 2006
Citigroup’s
prime and subprime first mortgage businesses, formerly separate, are
soon to be combined into a new
In
2005, Citi originated $130 billion in home loans making it the No. 6 producer in
the
Beckmann
acknowledged that Citi is not one of the top 10 providers for nonprime
mortgages, but he says there is no reason why they shouldn't be.
Though
the industry faces concerns over consumer credit, and uncertainties over home
prices, moving farther into higher-risk mortgages has become a goal for several
major banking companies, among them Wells Fargo and Washington Mutual.
Bank
of America, which got out of subprime five years ago, is now thinking about
getting back in, and Wachovia, which chose not to jump on the option
adjustable-rate mortgage bandwagon, now has a deal to purchase one of the option
ARM’s primary progenitors, Golden West Financial.
Part
of Citi’s strategy is to sell nonprime products through their existing prime
sales channels, Beckmann said. They have been adding new nonprime products as
they go along—nonprime meaning loans that do not fit the guidelines of Fannie
Mae and Freddie Mac. But Citi dos not expect go after "deep" subprime.
In
an interview with American Banker,
Beckman said that the new integrated structure will allow Citi to more
easily offer prime loans to current nonprime borrowers if they decide to
refinance.
He
thinks the consolidation will increase prime loans as well a nonprimes, and that
the latter will probably “have a material impact to our
business"—because of their comparatively greater margins in the current
market.
Competition
has surged among nonprime home lenders in recent years, but Beckmann says his
company believes nonprime still has much higher margins than prime lending, even
on a "credit-adjusted basis." More available information on the credit
performance of nonprime loans is another positive factor, he said.
"Given
the tightening of the prime market, it's a wonderful time … for us to be
bringing to bear some of our strengths in the space," he added.
Early
next year CitiMortgage plans to launch a "best fit" loan procedure for
borrowers—similar to what Wells Fargo introduced last year. Citi's tool will
also include a "suitability" test, Beckmann said.
CitiMortgage
is
also offering interest-only products to brokers and correspondents who had
worked with CitiFinancial Mortgage, the former nonprime entity, and has added
new interest-only products for less-creditworthy customers, such as the two-year
hybrid ARMs popular with subprime borrowers.
But
Beckmann said Citi would not offer interest-only loans "deep into the
nonprime space" - only down to FICO scores of 620. "…we're not going
to make a loan on an affordability basis. We're going to make a loan because we
believe it's right for a customer because we think they can pay it back."
Citi
has consulted with federal regulators to make sure they know what the company is
doing, especially regarding the interagency guidance that is soon coming out on
“exotic” products. Citi does not expect to make option ARMs with negative
amortization.
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Original story for American Banker by Jody Shenn