Frayed blue-and-white stickers on the glass doors bear the unit's old name, Citicorp Mortgage.
But inside the office building in St. Louis, colorful new banners greet the visitor. "One company. One brand. One voice," says one. Another reads: "We are the difference. We are this brand. We are CitiMortgage."
The slogans provide a fitting introduction to a mortgage company in transition.
Citicorp suffered disastrous losses from its mortgage business in the 1980s, and it gave the unit little direction or support throughout the 1990s. Former chairman John S. Reed on at least one occasion even referred to it as "a dog".
But now, two years after Citicorp's merger with Travelers Group, the home loan subsidiary is looking to become a top-five originator for the first time since the early 1990s, and a key part of Citigroup Inc.'s financial supermarket.
"We've taken this great opportunity with the merger to expand our whole business and to make sure that we are the mortgage offering to the Citigroup customers," said David B. Lowman, president and chief operating officer of CitiMortgage. "We're committed to growing this business."
Citicorp Mortgage Inc. became CitiMortgage on April 3. The unit was part of Citibank, and doing business sometimes as Citicorp Mortgage and sometimes as Citibank Mortgage confused customers, Mr. Lowman said.
The new logo and name are a big part of the company's strategy, said Mr. Lowman, who began his career as an accountant at KPMG and spent 11 years at Prudential Home Mortgage Co. before joining Citicorp Mortgage in 1996. He was named president and chief operating officer two years ago.
"As Citigroup rebrands itself, we are taking advantage of the identity that it stands for and rebranding our company," he said.
CitiMortgage ranked No. 9 in originations last year, with $27 billion. Washington Mutual Inc. of Seattle ranked fifth, with $41 billion. In 1998 CitiMortgage ranked 17th, with $16.4 billion.
Mr. Lowman said CitiMortgage has set the goal of becoming a top-five mortgage company because of economic reality.
"We think that in order to really compete, you've got to have a cost-effective operation," he said. "And the only way you can be cost-effective is to be big. I'm not interested in being able to say, 'I'm the No. 3 lender and I lost $100 million last year.' That won't work around here."
In 1999 CitiMortgage had net income of $141.5 million, or 3.2% of Citigroup's global consumer net income.
As evidence of its dedication, CitiMortgage acquired Source One Mortgage, a subprime lender in Farmington Hills, Mich., 12 months ago. It is now making a push to promote cross-selling throughout the 80-million-customer Citigroup empire.
"With the merger, we really now have a financial services company and a broad product array that we didn't have with Citibank alone," Mr. Lowman said. "We're looking at how we can leverage all the products around Citigroup to put together a common-branded offering to all the clients we have relationships with."
For example, CitiMortgage and Salomon Smith Barney, Citigroup's investment brokerage, have collaborated on a product called Preserved Asset Mortgage that lets borrowers pledge the equity in their Salomon accounts in lieu of a down payment without liquidating any positions. The year-old product has been enormously successful - it recently reached the $1 billion funding mark, CitiMortgage said.
Though April proved to be a brutal month for the stock market, CitiMortgage had no problems with the loans. "We have not had one account that exceeded the number of days under its margin that made Salomon Smith Barney make any calls," said Arlene M. Hyde, managing director of customer delivery. "And we've booked a lot of those loans."
The last two decades have been anything but smooth sailing for CitiMortgage and its parent. In the 1980s the mortgage company engaged in what some observers called unsound lending practices, which nearly put the entire company out of business.
"Citibank has historically not been terribly committed to the mortgage business," said Lawrence Cohn, an analyst with Ryan, Beck & Co. "They made a huge effort in the '80s, but it bit them badly in the last recession, and they really haven't done much with it since then."
Larry Swedroe, a former senior vice president at Citicorp Mortgage who left in 1986 for Prudential Home Mortgage Co., said a conflict over how to run the business hurt Citibank.
"We felt it should be run as a mortgage banking company, but the consumer bank ran it like a poorly run S&L" by employing flexible accounting rules that savings and loan associations can use but mortgage banks cannot, Mr. Swedroe said.
For example, Citi often would originate a loan without hedging against interest rate risk. If rates fell, it would sell loans at a profit; if they went up it would simply put the underwater loan in its portfolio. It also originated loans that did not meet the credit and documentation standards of the secondary market, and put them in its portfolio.
The strategy worked for much of the 1980s. "Good economic times can bail out poor underwriting, so you think you have a winning strategy," Mr. Swedroe said. But when the economy turned, he said, Citibank and its mortgage subsidiary were hit hard as the lending practices came back to haunt them.
Citi "ended up taking huge losses and with loans it couldn't sell because of poor documentation," Mr. Swedroe said. In addition, he said, Citicorp's internal politics, with divisions protecting their separate businesses, prevented effective cross-selling.
In August 1992 the Comptroller of the Currency's office criticized Citicorp in a memo for several practices involving its mortgage portfolio and other business lines, including poor credit quality, inadequate recording and reporting of delinquent loans, and maintaining too little capital to back the loans. According to the memo, by 1992 Citicorp Mortgage's capital was virtually wiped out by losses.
The experience left a bad taste in the mouths of Citicorp management, which allowed the unit to languish for the first half of the 1990s. In February 1995 Mr. Reed told analysts that that the company would keep the mortgage business, but only as a service to branch customers.
Carl Levinson, division executive for Citigroup's consumer asset division, who came aboard in the fall of 1992 amid losses in the mortgage unit, said he set up a three-point program of control, profitability, and growth for Citicorp Mortgage, which became profitable again in 1996.
That same year the company hired Richard Thornberry - considered to be one of the top executives in the mortgage business - from Prudential to run Citicorp Mortgage, a sign to many observers that the company was ready to take the business to another level.
But Mr. Thornberry and another executive, Jerry Halbrook, left in early 1998 after Mr. Reed waffled on the home lending expansion plans, suggesting that he intended to scale it back. Mr. Reed retired in April after losing a power struggle with Sanford I. Weill, former head of Travelers and current Citigroup chairman and chief executive officer.
Mr. Cohn of Ryan Beck said Citigroup's renewed support for the mortgage business comes from the Travelers side of the marriage. Travelers, he said, displayed a commitment to the industry; it sold its old mortgage unit to GE Capital Mortgage Corp. in 1990 only because the unit could not build the scale needed to compete.
With CitiMortgage, however, Travelers has inherited a company that has scale, Mr. Cohn said.
"I view it as one more sign that Travelers is firmly in control of what goes on in the consumer side of Citigroup," he said. Bob Lipp, chairman and CEO of Citigroup's global consumer group, "is in charge, and it's a reflection of what he likes," Mr. Cohn added.
Mr. Levinson said consumer demand undergirds the company's commitment to the business. "In the United States, clearly mortgages are important to the consumer, and that drives the importance to the corporation," he said. "We will use it as one of the linchpins to the customer relationship.
CitiMortgage officials acknowledged Mr. Reed's lack of interest in the mortgage business but said the parent now is firmly behind them.
"The company is clearly committed to this business, or we would not have purchased Source One or done the other things they've allowed us to do," Mr. Lowman said. "We have very firm commitments from the most senior levels."
CitiMortgage historically focused on a single product, jumbo mortgages, which exceed the statutory size limits for purchase by the government-sponsored enterprises. Such loans are taken out by borrowers who can afford expensive houses.
The Source One acquisition has enabled it to lend to a different class of homebuyers: those with damaged or otherwise imperfect credit.
"It really expands our product offering. We're able to have a much broader reach of the borrower population of the United States," Mr. Lowman said. "You can come to us through any of our distribution points, and we have a product to serve your needs."
CitiMortgage officials said the company will expand organically and through acquisitions. "The key piece for us is the 80 million domestic Citigroup customers," Mr. Stein said. "That will play a big role in our growth."
"I think you'll continue to see us make strategic acquisitions," Mr. Lowman said. "We've been looking at acquisitions since we did the last one. We just haven't found one that we think fits right."
Source One gave CitiMortgage something it never had before: 80 retail offices dedicated to mortgage origination. Since the acquisition closed, the network of branches has grown to more than 100.
Mr. Lowman said CitiMortgage would continue to open branches, targeting the more heavily populated regions where Citigroup already has a banking presence, such as New York, Chicago, northern and southern California, Florida, and the Washington, D. C. area.
"The focus is to be able to penetrate those markets where we have brand recognition and where we also have [Community Reinvestment Act] obligations," he said.
But only time will tell if the current commitment from Citigroup's top brass will hold.
"Citigroup and CitiMortgage have all the ingredients to be successful, the products and ability to create a one-stop shop and cross-sell," said Mr. Swedroe, now a private money manager. "The question is, 'Do they have the culture to do it?' "
