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Will Citi Strike Again?

When John Reed ran Citicorp, the company did its best to avoid growing its residential mortgage business. But that was then, before the banking colossus merged with Travelers and Sandy Weill took control.

Under the chairmanship of Mr. Weill, Citigroup has exerted its presence in residential finance like never before, acquiring not only several "A" paper firms, but one of the nation's larger subprime players, Associates First Capital Corp.

In mid-May, when Citigroup announced that it was buying Principal Residential Mortgage, Des Moines, the nation's 11th largest servicer, for $1.26 billion, few in the industry were surprised. (The sale had been rumored for weeks.)

Once completed, the PRM acquisition will make CitiMortgage, O'Fallon, Mo., the nation's fifth largest servicer with $340 billion.

Now the question becomes who will Citigroup buy next. The company has been mentioned as a possible buyer of Cendant Mortgage, Mount Laurel, N.J., a $138 billion servicer that currently ranks 10th.

If Citigroup winds up with Cendant, it would pass Chase Home Finance as the nation's No. 4-ranked servicer, putting itself in a position to challenge the "big three" of housing receivables: Washington Mutual, Wells Fargo Home Mortgage and Countrywide.

For now, Citigroup and CitiMortgage officials are saying little about its immediate plans, but as investment banker Brenda White of B.B. White & Co., put it: "I think this deal makes it clear that Citi believes mortgages are a central piece to the customer relationship."

Ms. White noted that over the past few years, "there has been a sea change in attitude" at Citigroup regarding mortgages.

The PRM deal is significant not just because it's large and Citigroup is the buyer, but because it marks the departure of the last major standalone insurance company from residential finance, and it leaves just two non-depositories - GMAC Mortgage, and Cendant Mortgage - among the top 15 funder/servicers.

Insurers still remain active in commercial mortgages, but the sale of PRM marks an end to standalone life companies trying to cross-sell residential mortgages to their customers.

(Citigroup, of course, bought Travelers, but the pre-Citi Travelers got out of residential finance in 1990.)

As Mortgage Servicing News went to press this month, PRM was holding meetings with employees to discuss the purchase and to ease their fears about a massive amount of mortgage jobs moving out of Des Moines to O'Fallon.

The acquisition, which is expected to close by year-end, also will make CitiMortgage the nation's fifth largest residential funder. (CitiMortgage currently ranks sixth in servicing, and eighth in production, according to figures compiled by MSN and the Quarterly Data Report.)

PRM's parent, Principal Financial Group, said it expects after-tax net proceeds on the sale to total $710 million. The insurer said that once it sheds PRM, it will focus on its core insurance business of retirement and risk protection.

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