Every time Citicorp thinks it has put its problems behind it, a new embarrassment seems to pop up.

The latest is a scathing report by bank examiners on allegedly sloppy practices in the banking giant's home mortgage operations.

The report, leaked to two newspapers earlier this week, stunned analysts and rivals. While mortgage woes at Citicorp -- highlighted by abnormally high delinquency rates -- have been well publicized for two years, many observers believe the nation's biggest bank had taken effective remedial action.

"I think Citicorp is taking some unfair hits here," said Stuart Feldstein, president of SMR Research, a Budd Lake, N.J., financial-services research firm. "My impression is that they have drastically changed their ways over the past year."

Report's Implications

But the examiners' report, said to be dated Aug. 18, criticized current as well as part management practices. Some analysts said it has implications far beyond the mortgage business.

The mortgage woes, they said, are the legacy of a dangerous credit culture spawned in the 1980s by chairman John S. Reed and president Richard Braddock -- a culture that tolerated great risk-taking for the sake of volume.

"At Citicorp, if you put a lot of big numbers on the board you were recognized," said one former employee.

Mr. Reed's credibility is open to challenge because of his recent vows to change the volume-driven culture. Since early 1991 he has talked about tightening credit standards as part of a broad program to cut costs, shore up capital, and generally run a tighter ship.

But until now, most of Mr. Reed's attention has been on the company's troubled corporate lending and commercial real estate portfolios.

Past Mistakes Lingering On

A former employee said that Citicorp "is trying mightily to get the whole credit culture straightened out," but added that it will live with its past mistakes for a long time. "Some of the credit culture thing is like closing the barn door" too late, he said.

Citicorp issued a statement on Thursday that described the examiners' report from the Office of the Comptroller of the Currency as "already outdated." It said it was "simply one of many working documents that typically apply to one of our periodic regulator audits."

A spokeswoman for the regulator would not comment.

|They Know This Business'

But one banker familiar with the OCC's real estate examination process, and the examiners who oversee Citicorp, said he could not easily dismiss the report as overzealous or uninformed. Though OCC examiners were once ill informed about the mortgage banking area, they "are very knowledgeable now," he said. "They know this business well."

In its prepared statement, Citicorp said it has taken strong steps to correct its problems.

"The U.S. mortgage problems are not new to our management," it said. "They have been identified and disclosed, and are being addressed."

Indeed, the bank tightened its standards for new mortgage loans last year, causing a sharp drop in lending volume. Once the nation's largest mortgage lender, Citicorp fell to 13th place for the first half of this year, according to SMR Research.

"Their rock 'n' roll days are over," said Allen Hardester, a principal in Baltimore-based Mortgage Funding Corp., a mortgage brokerage firm.

Remedial Acts Questioned

But the examiners' report raises questions about whether the remedial actions have been adequate.

According to the newspaper reports, the examiners faulted Citicorp for requiring little or no documentation for residential mortgages, conducting drive-by inspections rather than thorough appraisals, keeping inadequate records, calculating escrow accounts incorrectly, and placing the unit under an inexperienced chief executive.

The stock market, however, took the examiners' report in stride. Citicorp stock was trading at $16.50 a share in late Thursday trading, down 50 cents from its Wednesday close.

"For at least two years it's been obvious that the single-family lending side of Citicorp has been found wanting," said John Neff, a portfolio manager at Wellington Management's Windsor Fund, "but they've been trying to get back on track. It's certainly embarrassing, but it was embarrassing two years ago."

"I don't really think these week-to-week blips have a lot of meaning," said Stephen Norris, a managing director at Carlyle Group, which helped Saudi Arabian Prince Waleed bin Talal last year make a large investment in the bank company. "I think Citicorp's made a lot of progress on the expense side and I think they'll emerge from this [period] pretty much intact."

Persistent Doubts

Some leading mortgage bankers, however, questioned whether Citicorp's commitment to produce higher-quality mortgages.

"It appears to me they're not putting the proper resources into the problem," said Angelo Mozilo, vice chairman of Country-wide Credit Industries, the nation's largest mortgage company, and president of the Mortgage Bankers Association of America. "There's no reason these problems should be persisting."

For all the controversy, Citicorp is still approved to sell mortgages to both the Federal Home loan Mortgage Corp. and the Federal National Mortgage Association. Such approval has long served as the mortgage industry's equivalent of a Good Housekeeping seal of approval.

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