Citigroup has nearly $20 billion in home equity lines of credit, and it is preparing for the worst due to “resets” when borrowers must start paying back the home equity loans.
“That is the single largest risk that impacts the home equity book in Citi Holdings,” according to Citigroup chief financial officer John Gerspach. “It is something that we think about and drives a lot of thought on the level of reserves we need to have."
Citi expects $1.3 billion in HELOCs will reach their end-of-draw period in 2014 and reset. That will jump to $4.3 billion in 2015 and $5.6 billion in 2016, according to Citi’s second quarter 10-Q securities filing.
So far, Citi has experienced “marginally higher” delinquency rates on its amortizing HELOCs. But these resets generally occurred during a period of declining interest rates. Now that rates have moved higher, the payment shock will be greater.
Most of Citigroup’s HELOCs are in Citi Holdings, where the giant international banking company has walled off a $76 billion portfolio of legacy mortgage assets.
Citigroup currently has $5.7 billion in reserves to cover potential losses on this North American residential mortgage portfolio, which includes $10 billion in home equity loans and $20 billion in HELOCs.
The Office of the Comptroller of the Currency recently warned banks to prepare for increasing losses on their HELOC over the next four years.