Diminished Role Seen for Citicorp In Mortgages

In the 1980s, one of the biggest stories in the home mortgage market was Citicorp's rapid rise to the top. Now, as Citicorp prepares to revamp its mortgage operations, another blockbuster event is clearly in the making.

The reorganization, disclosed last week, could produce more than 500 layoffs and lead to a substantial decline in Citicorp's market presence, according to rivals and other industry sources. At the very least, they say, the move portends a radical shift in Citicorp's approach to mortgages, the granddaddy of consumer loans.

The plan, to be carried out over the next few months, calls for breaking up Citicorp Mortgage Inc. and placing the pieces within the consumer operations of Citicorp's banks and thrifts. The idea is to eliminate duplicate jobs and bring mortgages closer to the bankers who handle other relationships with consumers.

The move strikes at the heart of Citicorp's nationwide mortgage network. With 2,900 employees, the St. Louis-based mortgage unit has accounted for about one-third of Citicorp's total originations and has sought to coordinate the activities of other units. It also services some $70 billion of mortgages and has carried out extensive securitization work.

Layoffs Could Reach 1,000

While Citicorp has yet to disclose the magnitude of the layoffs, industry sources speculated this week that the job toll will run anywhere from 500 to 1,000. Marketing professionals and lawyers will probably be the first to go. Servicing staffers are considered relatively safe, because the servicing facility is expected to remain in St. Louis.

Among those to lose his job will be Robert D. Horner, chairman of Citicorp Mortgage Inc. for the past five years. Citicorp's new mortgage coordinator will be David A. Brooks, head of the banking company's western consumer division.

Some executives in the mortgage industry are interpreting all this as a repudiation of Citicorp's high-volume approach in the 1980s. As a practical matter, they say, Citicorp cannot operate as a major player on the national level without a tightly focused mortgage banking unit to coordinate originations and sales of loans on the secondary market.

"I think it's a very sad thing," said an executive at another large mortgage concern. "They are acknowledging that they no longer wish to be a national mortgage leader."

Citicorp, for its own part, disputes that. Though admittedly changing its ways dramatically, the company insists it is not pulling back. "The commitment to the mortgage market is as great as it ever was, and I expect that to continue," said Mr. Horner.

Controversial Strategy

Citicorp rose to fame in the market in the mid-1980s with a controversial strategy called MortgagePower. Essentially, the tactic allowed realty brokers and mortgage brokers to earn extra fees for helping people get loans at Citicorp. The brokers also liked Citicorp because it was relatively lenient in its underwriting standards, though its pricing was often higher than competitors'.

The approach helped make Citicorp the No. 1 originator for much of the late 1980s. But in the view of critics, it also brought about a sharp rise in mortgage delinquencies. At the end of the first quarter, 5.12% of the company's home loans were nonperforming, versus an average of 1.61% for all banks and thrifts, says SMR Research.

In addition to problems with the mortgages it has held, Citicorp is being haunted by loans it sold to the secondary market with "recourse." Some of these mortgages have been souring and coming back to Citicorp, which retains some liability if the loans default. As the American Banker reported on Thursday, the company also appears to have been holding an inadequate amount of regulatory capital against the recourse loans.

Coming at a time when Citicorp is searching for ways to cut costs, such problems made the mortgage operations a natural target for a shakeup, analysts and mortgage executives said.

Citicorp has eliminated about 7,000 positions in the past year or so, mainly on the corporate side. The expected mortgage cuts would be the biggest yet on the consumer side.

"The cost-cutting exercise is extending throughout the company," said Judah Kraushaar, a bank analyst at Merrill Lynch Capital Markets.

As the mortgage reorganization unfolds, Citicorp is expected to place an increasing emphasis on originating at branches rather than through brokers. That shift, in theory, could bolster cross-selling opportunities and give Citicorp tighter control over credit quality.

But many experts anticipate the change will bring a drop a volume, at least in the short term and possibly for much longer. Some other companies have already stolen the limelight. Norwest Corp. emerged as the No. 1 originator for the first half of this year - up from No. 5 - and the planned combination of BankAmerica Corp. and Security Pacific Corp. may well produce another originations king.

Stuart Feldstein, president of SMR Research, predicts that Citicorp will remain a major player, but he nonetheless expects some reduction in the company's market presence.

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