Citi Reserves $25.7B for Residential Mortgage Lending

Citigroup Inc. (C), the recipient of $45 billion through the Treasury Department‘s Troubled Asset Relief Program, on Tuesday released a progress report detailing the usage of government bailout funds through the fourth quarter 2008. The distribution of some $36.5 billion so far has been made through various lending capacities, “to help expand available credit for consumers and businesses; restore liquidity and stability to the capital markets; and support the recovery of the U.S. economy,” according to Citi’s press release regarding the report. “Our responsibility is to put TARP capital to work quickly, prudently, and transparently to support U.S. consumers, businesses and our communities during these challenging times,” said CEO Vikram Pandit. “We have already approved $36.5 billion in initiatives backed by TARP capital that are consistent with the objectives and spirit of the Treasury program.” Citi reported it has dedicated $25.7 billion for residential mortgage originations and the purchase of prime residential mortgages as well as mortgage-backed securities. The bank also reserved $2.5 billion for personal and business loans, $1 for student loans, $5.8 billion for credit card lending and $1.5 billion for corporate lending. The bank said in the report that no TARP funds will go toward compensation or bonuses, dividend payments, lobbying “or any activities related to marketing, advertising and corporate sponsorship.” Instead, Citi has said it will “continue to focus on supporting the U.S. housing market.” It is also working to adopt a streamlined modification program for post-delinquency loans like the one employed by the Federal Deposit Insurance Corp., and touted that even in 2008, it kept an average four of five distressed borrowers with Citi-serviced mortgages in their homes. The bank reported that, under the TARP-funded residential mortgage initiative, it is investing $10 billion in mortgage-backed securities guaranteed by Fannie Mae (FNM) and Freddie Mac (FRE): $5 billion in 15-year fixed-rate mortgage and the remaining $5 billion divided between various adjustable-rate mortgages. The move is expected to free up liquidity for “lenders who need to replenish funds so that they can continue to originate mortgage loans.” Citi is also purchasing $7.5 billion in prime residential mortgages from the secondary markets — mortgages, the bank said, that were made to qualified borrowers capable to meet monthly payments. Finally, Citi is promising $8.2 billion in non-conforming mortgage loan originations — by definition higher in value than the limits set for government-sponsored loans, which Citi estimated between $417,000 and $625,500 — because, according to the bank, the interest rates are typically higher, carry a higher risk than conforming mortgages and have therefore fallen more sharply in origination in the past year then conforming loans. Citi also promised to release quarterly reports on the distribution of the $45 billion it has received through the TARP and continue to use the special TARP committee it set up in early November to review and approve the uses of TARP capital. “The Government, on behalf of American taxpayers, has invested in Citi,” Pandit said in the report. “We have an obligation to repay that confidence in ways that go well beyond the $3.41 billion that Citi will pay the Government each year in dividends associated with its TARP investment and a separate loss sharing agreement.” On Oct. 28 Citi received $25 billion through the capital purchase program and then on Dec. 31 received a second infusion through the sale of an additional $20 billion in preferred stock through the — at the time — brand new targeted investment program. Then on Jan. 16, the Treasury finalized the details of a government loss-sharing initiative with Citi, with the Treasury’s TARP-funded share of the guarantee coming to $5 billion. With the asset guarantee — admittedly not a capital infusion, but a promise of TARP funds, nonetheless — Citi boasts the most bailout funds even over close second Bank of America Corp. (BAC), whose initial $15 billion coupled with the $10 billion it received after the closing of the Merrill Lynch merger as well as the $20 billion targeted investment brings BofA’s total infusions to $45 billion. The only institution coming close after BofA is American International Group (AIG), which received $40 billion on Nov. 25 on account of its status as a “systemically significant failing institution,” according to Treasury reports. Read Citi’s TARP progress report. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.