In a move designed to round out its mortgage-related activities, Citigroup Inc. has created CitiFinancial Mortgage Co., which has entered into an asset purchase agreement with IMC Mortgage Co.
The new company will be an indirectly wholly owned subsidiary of Citigroup, and will securitize IMC home equity product going forward.
A Citigroup spokesman said the company intends to take the IMC assets and also originate new assets through the IMC channels. It will also continue the program of securitizing such assets. IMC originates home equity loans and subprime mortgage loans. The portfolio being acquired contains both types of assets, the official added.
The source said that prior to the IMC transaction, Citigroup's different mortgage units dealt directly with consumers: The Citibank Mortgage business concentrated on limited-risk lending activities, while the Commercial Credit unit was engaged in consumer finance activities to "a slightly higher risk profile."
What the bank did not have was a broker-correspondent channel and distribution network for higher risk based lending activities originated through other lenders. It hopes to be able to trade off the "Citi" consumer brand name in growing this business, the spokesman said.
The transaction will comprise "some loans, some expertise and some real estate," he said. Another market source said that even though IMC will theoretically continue in business after the asset sale to CitiFinancial, it is experiencing considerable financial problems that raise questions about its viability.
The Citigroup accord with IMC supercedes an earlier agreement that the company had with Greenwich Street Capital Partners II LP that began as a loan and was subsequently recast as an acquisition. This has now been terminated. However, Citigroup has a sizeable interest in Greenwich, according to market sources, so the Citi deal was not regarded as a total surprise.
Earlier this year, IMC had advised that it was cutting back on its securitization activities while claiming to be selling most of its production on a whole loan basis or keeping it in portfolio.
