Citigroup Puts $10.3B In Fannie MSRs On The Block

Citigroup is selling mortgage servicing rights (MSRs) for about 64,000 Fannie Mae residential first-mortgage loans with about $10.3 billion in unpaid principal balances.

Fannie Mae acquired the rights and will transfer the servicing to Andrew Wilson Financial Services, Bloomberg News reports. Terms of the deal weren't specified. The MSRs primarily reside in Citi Holdings.

‘This transaction advances Citi's ongoing objective to reduce assets and expenses within Citi Holdings and more efficiently aligns Citi's mortgage servicing operations with current business needs,’ the bank said in a statement.

The sale is part of an overall trend among the larger banks, which have been divesting themselves of their MSRs due to implementation of the Basel III rules, which will require banks to hold more capital in their reserves to cover potential losses on the mortgage loans they service.

In October, Citi announced that it was gearing up to sell MSRs on $63 billion in loans it held in its portfolio. At the time, those MSRs represented about 21% of the bank's total contracts as of midyear. More than 80% of those loans were reportedly performing.

In the case of this most recent sale, the MSRs represent mostly delinquent loans serviced by CitiMortgage for Fannie Mae. They represent about 20% of the total loans serviced by CitiMortgage that are 60 days or more past due, the bank said in its statement.

As part of the agreement, Citi and Fannie Mae substantially resolved pending and future compensatory fee claims related to Citi's servicing practices on these loans.

Citi adds that the deal helps it reduce assets and expenses within Citi Holdings and more efficiently aligns the bank's mortgage servicing operations with its current business needs.

The transfer of servicing is expected to commence in the first quarter and will continue into the third quarter of this year.

In recent months, other major banks including Wells Fargo, Bank of America and Ally Financial have been selling their MSRs as they seek to get out of the servicing business ahead of implementation of the Basel III regulations. Some are getting out simply because servicing now represents a shrinking part of their business.

Meanwhile, private equity firms, hedge funds and other servicers have been snapping up MSRs as they seek to get a larger slice of the $10 trillion mortgage-servicing market.

Citigroup had reduced assets in the Citi Holdings portfolio to $122 billion at the end of September, Bloomberg News reports. The bank said in its statement that it plans further reductions in Citi Holdings.


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