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By Jonathan Stempel
NEW YORK, June 24 (Reuters) - Citigroup Inc (C.N) said a big mortgage unit has temporarily stopped buying new loans after concluding that some property appraisals and documents showing borrowers’ incomes were missing.
The halt comes as mortgage companies tighten their standards after years of lax underwriting let many borrowers obtain loans they could not afford or which were too large given the underlying property values.
In a June 22 letter to clients, Citigroup said it would stop accepting correspondent loans, which are made through banks and independent providers, at 6 p.m. on June 23, and would resume acceptance on July 6. “There remain key areas that sometimes fall short of our quality-control process,” according to the letter, signed by CitiMortgage Managing Director Brad Brunts and Senior Vice Presidents Jeffrey Walker and Cindy Manser. “It is vital to our business and our relationship that we collectively work to dramatically improve quality.”
In the correspondent business, CitiMortgage would typically buy mortgages originated by other lenders. It sometimes retains the servicing rights on mortgages it subsequently sells.
As of Dec. 31, the bank had $73 billion of mortgages made in the correspondent channel on its books, or 38 percent of a total $193 billion of mortgages, its annual report shows.
A copy of the June 22 letter was obtained by Reuters. Its contents were confirmed by Citigroup spokesman Mark Rodgers. He said the bank reviews quality control in the correspondent business “on an ongoing basis, and we have identified areas of improvement.”
The letter said Citigroup had identified many shortcomings in mortgage applications, including missing or incomplete appraisal documentation, “insufficient” property valuation methodology, errors in calculating borrower incomes, and missing employment verifications.
In the annual report, Citigroup said mortgage loans made through the correspondent channel had higher delinquency rates than retail mortgages, and that as a result it stopped doing business with “a number” of correspondents in 2007 and 2008.
Citigroup in January moved CitiMortgage into a group of non-core assets, known as Citi Holdings, that it hopes to sell, restructure or wind down.
The bank accepted $45 billion of federal bailout money and is conducting a stock swap that may leave the government with a 34 percent ownership stake.
Citigroup has lost $36 billion in the last six quarters, and analysts on average expect it to lose money over the balance of 2009, according to Reuters Estimates.
(Reporting by Jonathan Stempel; Additional reporting by Ajay Kamalakaran in Bangalore; Editing by John Stonestreet and John Wallace)
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