Tuesday, November 6, 2007

Citigroup: Turnaround or Titanic?

"WASHINGTON (Thomson Financial) - The world's biggest bank, Citigroup, named former US Treasury chief Robert Rubin as its new chairman Sunday, replacing Charles Prince, who resigned after the bank's poor performance in the subprime mortgage crisis....

Like some of its rivals, Citigroup (nyse: C - news - people )'s balance sheet has been hit by losses from its exposure to mortgage-backed securities, which have been ravaged by the housing downturn...." http://www.forbes.com/afxnewslimited/feeds/afx/2007/11/04/afx4298181.html

Citigroup is one of the world's largest corporations, so large that it is considered by many in the financial community to be almost too big to govern. The above passage from Forbes is a perfect example of what is wrong at Citigroup. Citigroup's staggering losses are due in large part to subprime mortgage-backed securities. Since Citigroup has been hammered by them, it is reasonable to ask how Citigroup has changed its exposure to subprime mortgages.

Citigroup has a mortgage wholesale division, Citimortgage, which is one of the top five wholesale lenders in the mortgage industry (It wholesales mortgages to mortgage brokers. In 2006 it merged its subprime division, Citifinancial, with is prime mortgage division, Citimortgage.). At the end of 2006 it was the tenth largest subprime lender in with $5 billion of originations in the fourth quarter (http://www.marketwatch.com/news/story/top-10-subprime-originators-slanted/story.aspx?guid={100602BA-13D5-4B8C-BEB6-D5547594D449}&siteid=yhoo&dist=yhoo). However, as leading subprime lenders have gone out of business or have curtailed operations, Citimortgage is probably one of the top six or seven subprime mortgage lenders.

Citimortgage issues a daily rate sheet to mortgage companies and other clients such as banks that originate mortgage loans. These rate sheets are market driven and sometimes change several times in a day (the 10 year treasury bond is usually a reliable indicator of how mortgage interest rates will fare). According to Citimortgage's rate sheets, Citimortgage offers a variety of mortgage programs for borrowers: Fannie Mae, Freddie Mac, FHA, VA, and a program called "Expanded Lending." What exactly is "Expanded Lending"? Expanded Lending is the term Citimortgage uses for its subprime mortgage lending.

Some lenders still offer subprime mortgage lending programs but the programs are a shell of their former selves. There are very little, if any, "no down payment" programs for supbrime borrowers. ( In the past a borrower with a 580 or above credit score could get a mortgage without a down payment.) So-called Stated Income programs for subprime borrowers have gone the way of the dodo bird. One would expect Citimortgage to become more conservative in its subprime mortgage lending. However, a study of its rate sheets show it still offers programs currently considered to be very aggressive in the mortgage industry.

For starters, Citi offers a 100% loan-to-value mortgage for borrowers with a minimum 620 credit score. It also allows for cashout refinances (cashout refinances are generally considered to have a higher level of risk) at 100% LTV. There is no mortgage insurance for the program. If the borrower can not verify income based on pay stubs, tax returns, W-2's, and other similar verifications of income and employment, it allows the borrower to instead provide bank statements for an increase of .250 to the interest rate. Thus, the borrower is able to avoid long-established standards used for underwriting mortgages and protecting the lender from increased levels of risk.

Citi's aggressive subprime lending does not stop there, as it lends to borrowers with credit scores as low as 530, which is considered to be a poor credit score. A borrower with such a score can still get a mortgage from Citi if he only has 15% to put down on a house or if he has that much equity in the home. The bank statement option is still available to that borrower. Citi even offers an interest-only option to its borrowers, something that has been largely abandoned by many lenders in today's subprime climate. Citigroup has curtailed some of its lending practices recently (It quit approving 80/20 loans as well as dropping ARM programs for subprime borrowers. ). However, its subprime lending practices are probably the most aggressive in the industry.

The point of this bloviating is to ask what exactly is Citigroup's exposure to future subprime losses? If Citigroup is suffering from huge losses due to subprime mortgage-backed securities, then why is it the most aggressive subprime lender in the mortgage industry? One must wonder what Citi is thinking when it is offering subprime mortgages that require no down payment or mortgages to borrowers with low credit scores. Is Citi prepared to do what it takes to restore itself to profitability or is it merely rearranging the deck chairs as the ship sinks? What has probably happened is that Citigroup is so big that it is almost impossible for senior executives to know what is taking place at the lower levels as those at the boardroom level probably are not well-versed in the ways of mortgage lending. However, unless Mr. Rubin and other leaders of Citigroup pay more attention to its subprime mortgage lending, it can probably expect such losses to continue.

*Must cite JacksonJambalaya.com*

More coverage: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/11/05/bcnciti105.xml

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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).

Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.

In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS