Citigroup executives remain very guarded about the outlook for the housing market and they have no immediate plans to reduce their reserves for possible mortgage losses.

“We see pockets of improvement,” said Citigroup chief financial officer John Gerspach during a conference call Monday.

But he stressed that there are still a lot of foreclosures in process that have not hit the market yet and it may take years for the market to stabilize.

“Due to the substantial foreclosure backlog, ongoing political headwinds, and the risk of any weakening of the U.S. economy, we have not released any general loan loss reserves against our mortgage portfolio to date and have maintained robust coverage ratios,” he said in discussing the bank’s second-quarter financial results.

Citigroup is making one exception when it comes to losses incurred in making loan modifications with principal reductions as part of the $25 billion national mortgage settlement that Citi and four other large banks entered into with the state attorneys general and federal agencies.

“We will release reserves to cover those losses because those loans have been fully reserved for,” Gerspach said.

In the first quarter, Citigroup incurred $370 million in losses on principal reductions related to the settlement. And there was a corresponding $350 million release of loss reserves for those charge-offs.

Meanwhile, Citigroup originated $12.9 billion in single-family loans in the second quarter, down 10% from the quarter prior, but up 17% from a year.

The Citi CFO expects refinancings will remain high in the third quarter and “probably into the fourth quarter.”

In response to a question, Gerspach noted that gain-on-sale spreads were down 30 basis points to 40 bps in the second quarter from the first quarter.

“However, spreads are well above historical levels,” he added.

The company said its consumer retail banking revenue hit $1.6 billion in the second quarter, up 32% from a year ago, “largely due to higher mortgage revenue.”

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