Citigroup Inc, the largest US bank and one of the largest US mortgage lenders, is telling brokers that on Monday it will stop making some riskier home loans, documents obtained by Reuters show.
The move follows decisions by Countrywide Financial Corp, Wells Fargo & Co and other major mortgage lenders to tighten their underwriting standards as homeowner delinquencies and defaults increase.
The changes at Citigroup's main home loan unit, CitiMortgage Inc, would limit no-money-down second mortgages and raise the minimum credit scores needed to obtain them. Borrowers take out second mortgages when they cannot get 100 percent financing from a single lender.
Asked to confirm the changes in mortgage policy, a Citigroup spokesman, in an e-mailed statement, said: "We routinely review our criteria and make adjustments as appropriate according to market conditions." CitiMortgage made $50.6 billion of loans between October and December, ranking third in the United States, according to National Mortgage News.
According to e-mails obtained by Reuters, CitiMortgage will stop offering second loans to some customers who want to finance 100 percent of homes' values and cannot fully document their own finances. The unit will require 5.01 percent down on some second - sometimes called combo - loans, and 10.01 percent down where financing involves home equity or interest-only loans, the e-mails show.
The bank will allow 100 percent financing to some customers who can document their finances, and to some customers who lack full documentation but obtain their secondary financing elsewhere, the documents show. The documents also show that CitiMortgage will raise the minimum "FICO" credit score needed to obtain any combo loan to 650, and eliminate the 620-649 category.
Borrowers with FICO scores below 620 are commonly labelled "subprime," meaning they have higher credit risks. Citigroup is tightening its lending standards as a slowing housing market dampens profitability even at many lenders specialising in higher-quality loans.