Citigroup Inc. has suspended loan applications at a unit that produced half of its $115 billion of mortgages last year after a review found some property appraisals and income-verification documents missing.

The correspondent division stopped accepting new loans at 5 p.m. Tuesday and will restart July 6, Citigroup said in a June 22 letter to clients. The company said it will use the time to change procedures and fix the omissions.

"There remain key areas that fall short of our quality-control process," said the letter, which was signed by Brad Brunts, a managing director in the company's CitiMortgage unit. "We ask you to review your processes and join us in this effort to collectively address these areas of concern."

Citigroup has been overhauling its mortgage business since January, when chief executive officer Vikram Pandit placed it in a "noncore" group called Citi Holdings along with other businesses targeted for sale, wind-down or restructuring.

The new procedures in the correspondent unit came after a series of steps Citi's mortgage business took in the past two years to address lapses in documentation or underwriting standards. The business is run by Sanjiv Das, who reports to Citi Holdings CEO Mike Corbat.

In October, Citigroup cut off all but 1,000 of the 9,500 mortgage brokers in its network for selling the bank loans of poor quality or in insufficient volume to be profitable. The company also stopped making second-lien mortgages through third parties.

Mark Rodgers, a Citi spokesman, said quality-control practices at the correspondent unit are reviewed continuously "and we have identified areas of improvement." He would not say how many loans lacked documentation.

At Dec. 31, Citi had $73 billion of mortgages on its books that had been originated through the correspondent channel.

Loan purchases already in the works will continue, according to the letter to clients.

The review identified "valuation concerns" where "appraisal documentation is missing or incomplete" or where property-assessment methods were "insufficient/lacking," the letter said. Other missing information included employment confirmations, phone numbers, credit reports and rent verification, the letter said. The review also found "income calculation errors."

David Lykken, a managing partner at the Austin consulting firm Mortgage Banking Solutions, called the suspension of correspondent lending "a bold step" that may frustrate Citi's mortgage banking partners. They will have to turn to Citi's competitors to unload their loans during the suspension, he said.

Before Pandit moved the mortgage business into Citi Holdings, Citigroup had determined that loans coming from the correspondent channel had higher delinquency rates than those from retail channels, according to the company's 2008 annual report, filed in February.

Citi later terminated "an undisclosed number of correspondent mortgage banks," the annual report said.

The letter said the bank remains "committed" to the correspondent business and wants to "continue to be a long-term, recognized industry investor."

Scott Stern, the CEO of the mortgage banking cooperative Lenders One in St. Louis, said the documentation improvements may reduce the number of bad mortgages Citigroup forces its customers to buy back.

"If the end result of these actions is a faster loan-acquisition process and fewer loan repurchases for mortgage companies, it will definitely have been a good decision," Stern said.

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