Citi May be No. 1 B&C Servicer Soon

Citigroup has acquired the $45 billion subprime servicing portfolio of Ameriquest Mortgage, a transaction that will help it challenge Countrywide Financial Corp. for the No. 1 spot among B&C servicers.

No purchase price was disclosed. One warehouse executive who has done business with Ameriquest called the servicing platform "its crown jewel."

Ameriquest, which is now just a shell company, is based in Orange, Calif. The servicing platform is located in suburban Illinois.

Citigroup also purchased Argent Mortgage, a nonprime wholesale lender that is a sister company to Ameriquest. Both Ameriquest and Argent were owned by ACC Capital Holdings, a company controlled by industry veteran Roland Arnall.

Citigroup signed an option to buy the assets from ACC in late February. As part of the original option deal, Citigroup agreed to provide working capital to Ameriquest/Argent. (The option was set to expire this fall.)

The sale of the two divisions effectively ends Mr. Arnall's career in subprime mortgage banking. He is currently serving as ambassador to the Netherlands.

Mr. Arnall, who has rarely granted press interviews, started in the subprime business three decades ago when he ran Long Beach Savings.

He eventually got rid of his thrift charter, converted Long Beach to a non-depository mortgage banking company and then sold part of it to Washington Mutual. He then rebuilt the company, growing it into Ameriquest Mortgage, a retail lender, and Argent, a wholesaler. Back in 2005, it reportedly earned $1 billion, pretax.

Up until two years ago the privately held Ameriquest/Argent ranked first among subprime funders. The company ran into trouble starting in late 2005 when investigators in several states accused it of predatory lending. It eventually settled out of court, agreeing to pay damages of $325 million. (Ameriquest exited the retail channel in May of 2006.)

By purchasing the Ameriquest receivables, Citigroup will grow its subprime servicing portfolio to about $110 billion. At the end of June, CFC serviced $125.6 billion in subprime, ranking first in that niche.

Of course, the subprime industry is in the throes of a historic correction with 125 nonconforming mortgage bankers (mostly non-depositories) shutting down or closing part of their operations since December of 2006. CFC is still servicing subprime but is not funding new loans.

"Exercising our option to acquire the assets from ACH's wholesale origination and servicing business allows Citi to secure valuable and scalable platforms in a market undergoing significant change," said Jeffrey Perlowitz, head of global securitized markets for Citi's fixed income, currencies and commodities division, where the assets will reside.

He added, "Through this acquisition, we gain important operational and pricing efficiencies and the ability to extend the high lending standards of our existing residential mortgage business from point of origination through securitization and servicing."

At A Glance: Citifinancial And Ameriquest - B&C Servicing Stats

(Dollars in millions)

Company Subprime Subprime B&C Serv.

Name Serv. at 6-30-07 Mkt. Sh. Rank

CitiFinancial (e) $ 66,000 5.50 % 4

Ameriquest $ 45,000 3.75 % 13

Combined $111,000 9.25 % 2

Notes: B&C is another word for subprime. (e) Estimate. In 2006 Citigroup stopped reported its subprime housing receivables.

Source: MSN/Quarterly Data Report.

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