Citigroup Inc. is largely exiting the wholesale mortgage business, a step that many rival banks took last year.

Under a downsizing plan announced internally on Tuesday, Citigroup will reduce the number of outside mortgage brokers it does business with around the U.S. to 1,000 from about 9,500, according to a person familiar with the matter.

Citigroup also will lay off about 500 sales and operations employees in its CitiMortgage division, the person said.

In the wholesale mortgage business, companies like Citigroup rely on third-party brokers to drum up home loans. As the mortgage industry started unraveling nearly two years ago, loans that were originated through the wholesale channel became largely synonymous with shoddy underwriting. That prompted banks nationwide to abandon those businesses.

Citigroup is scaling back its wholesale mortgage business due to "the current business environment," said the person familiar with the company's plans.

The company plans to eventually consolidate its remaining sales and operations workforce, which currently works out of a handful of centers around the U.S., into hubs in St. Louis and Dallas. Among the mortgage centers that are likely to close is one in Atlanta, which sells mortgages through Citigroup's Primerica unit, said the person familiar with the plans. Citigroup has been trying to find a buyer for Primerica, which also includes a life-insurance and mutual-fund sales force, according to people familiar with the matter.

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