Citigroup to Exit Mortgage Servicing, Sell $97B Portfolio

Mortgage

Citigroup plans to exit the mortgage-servicing business by the end of 2018 to focus on making new loans.

New Residential Investment Corp. agreed to pay Citigroup $950 million to buy servicing rights on Fannie Mae- and Freddie Mac-backed loans with $97 billion of outstanding balances, the New York-based buyer said Monday in a statement. Citigroup also reached a deal with Cenlar FSB to service its remaining mortgages, and plans to transfer the rights for those loans beginning in 2018, the bank said in a separate statement.

The sale to New Residential, which is subject to regulatory approval, is expected to be completed in the first half of 2017. Citigroup said the agreements will reduce pretax results by about $400 million in the current quarter. Expense benefits will start to accrue in 2018, according to the bank.

“The strategic action is intended to simplify CitiMortgage’s operations, reduce expenses and improve returns on capital,” the New York-based company said in the statement.

Mortgage servicers handle the billing and collections on home-loan payments and oversee foreclosures. Many banks have pulled back on their servicing units as costs for the business rose and regulatory pressure intensified. Earlier this month, Citigroup agreed to pay $28.8 million to settle allegations by U.S. regulators that two of the bank’s mortgage-servicing units misled borrowers.

Citigroup’s mortgage-servicing rights were worth $1.6 billion at the end of last year, down from $6.5 billion at the end of 2009, according to the company’s fourth-quarter earnings statement. The bank produced $371 million in fees from servicing securitized mortgages in the first nine months of last year, down from $416 million in the same period of 2015.

As lenders have pared their servicing businesses, nonbanks have stepped in. The share of home mortgages serviced by nonbanks increased to 24% in 2015 from 6.8% in 2012, according to an April report by the U.S. Government Accountability Office.

New Residential, run by Chief Executive Officer Michael Nierenberg, said its servicing business benefited from higher interest rates in the quarter. Higher rates typically dissuade borrowers from paying mortgages early, which increases the value of servicing rights, the company said in a filing.

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