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CitiFinanical 'A Different Company' Now

Rating agency Moody's Investors Services says that Citifinancial Mortgage, the subprime lending subsidiary purchased by Citigroup two years ago, has become a "distinctly different company" as a result of sweeping changes made at the business.

And in a report on Citifinancial, Moody's said it views the changes as positive. Citifinancial traces a portion of its history to Associates, which was merged into Citigroup in December of 2000 as a result of the acquisition.

Since that time, and often under pressure from consumer advocates who had accused Associates of heavy-handed lending tactics, Citifinancial has revamped quality control and regulatory review, improved the credit quality of loans originated, and instituted back-office and operational upgrades, Moody's said. New front-end and servicing systems have been installed. Underwriting, servicing and quality control is centralized at the company's Irving, Texas, headquarters.

Many managers and professionals have been transferred to Citifinancial Mortgage from Citigroup, the rating agency said. And Moody's analyst Warren Kornfeld, chief author of a report on the firm, said Moody's analysts believe CitiMortgage, the parent company's prime mortgage lending unit, exerts a positive influence on underwriting, servicing, capital markets and operations at Citifinancial Mortgage.

Moody's said that Citifinancial Mortgage Co. is now "strongly positioned in the subprime mortgage market" as a result of the changes, including its "best practices" initiative.

And average credit scores and the percentage of first-lien loans have been increasing since Citigroup took over the firm.

As a result of the reforms, Moody's expects newly originated loans "to perform much better than older vintages."

"Citigroup's consumer risk management expertise is among the best in the industry," the report said, citing the company's higher-than-average, loan-to-value ratios.

But only time will tell how much better, the rating agency added. And in addition, Moody's said that Citifinancial Mortgage still originates subprime loans that are "riskier than those originated by the typical subprime residential mortgage securitizer."

On CFMC's first two MBS transactions, the average LTV was almost 90%, Moody's said. This offset average FICO scores that were better than average for the subprime industry.

Moody's also concluded that Citifinancial Mortgage has a "somewhat above average" loan servicing operation, again saying the company benefits from its ties to Citigroup's prime mortgage unit.

Citifinancial Mortgage operates out of two servicing centers, one in Irving and one in Phoenix. Since acquiring Associates, Citigroup has replaced Citifinancial's proprietary loan servicing software platform with Fiserv's MortgageServ software.

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