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Citi Braces for Mortgage Buybacks

Citi's third-quarter mortgage repurchase reserves jumped by a sequential 30%, to $952 million.



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third-quarter mortgage repurchase reserves jumped by 30% from the previous quarter -- to $952 million -- which was also more than triple what the the bank had reserved during the same period last year.

Between the second and third quarters, Citi added $322 million to its reserves based on a worsening outlook for its estimate of potential future purchase activity, CFO John Gerspach said during the bank's third-quarter earnings call with analysts. An additional $3 million was added due to new mortgage sales in the quarter as well, documents show.

Citi CFO John Gerspach

Citi reported early Monday third-quarter earnings of $2.16 billion, or 7 cents a share, its

third consecutive profitable quarter

and beat Wall Street estimates.


repurchase requests

by the government-sponsored enterprises has been another troubling topic for mortgage servicers. The other issue hitting bank stocks hard these days has been the latest foreclosure crisis. State officials have begun scrutinizing banks' foreclosure processes for potential fraud and lack of due diligence before some properties were foreclosed upon.

Gerspach said in prepared remarks during the institution's earnings conference call with analysts that "the integrity of Citi's foreclosure process is sound."

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"We have intensified our ongoing process reviews and on that basis have not identified any systemic issues," he said.

Citi's servicing portfolio totaled $504 billion as of September 30.

Repurchase losses recognized by the bank increased for the fifth consecutive quarter, to approximately $100 million. That is up from $74 million in the second quarter and $26 million in the prior year's quarter.

Gerspach said that un-indemnified loans originated between 2006 and 2008 represented about a third of Citi's $504 billion servicing portfolio and "generated the bulk of our claim and repurchase activity."

Citi's repurchase claim requests fell to 2,000 loans from 2,800 in the second quarter. Still, they were up from the 1,800 repurchase requests in the third quarter of last year.

Gerspach said that from 2008 through September 30, Citi received repurchase claims totaling 17,500, with about 4,700 of those claims still pending.

Of the 12,800 resolved claims, about half have been repurchased or made whole, he added.

Gerspach said in response to one analyst question that Citi is not getting many requests yet from private mortgage-backed securities investors. Approximately 3% of the serviced portfolio represents loans securitized to private investors.

"It's probably because investors from the private side -- there is a chain they have to go through before they even make requests for claims. It's a bit more complicated," Gerspach said. "It just hasn't generated significant claims at this time."

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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