Citigroup, Inc. (C) is set to to eliminate 950 employees in its default mortgage servicing division soon after its recent announcement to sell off of mortgage-servicing rights (MSRs) on 64,000 Fannie Mae (FNMA) residential first mortgage loans. Notably, it represents an outstanding unpaid principal balance of about $10.3 billion.
Citigroup plans to close its default mortgage service unit in Fort Mill by axing 200 employees, while 50 employees will be affected with the shutting down of its Hagerstown home loan service unit. The locations of the remaining 700 lay offs are not yet disclosed. Further, the company plans to evict another 600 employees in Hagerstown and 180 employees Fort Mill area by the end of 2014.
Notably, the laid off employees may seek other positions in Citigroup, while those departing from the company are entitled to receive a compensation amounting to 60 days remuneration and severance pay based on the tenure of service.
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With the new capital regulatory norms, loan servicing has become expensive thereby putting pressure on banks’ cost structure. The proposed sell agreement with Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) was part of Citigroup’s strategy to minimize expenses and non-core assets through shedding operations within Citi Holdings. Hence, the move is expected to strengthen the company’s balance sheet and Basel III rules.
Notably, the market has been lately witnessing weak mortgage refinancing activities as well as slower new originations owing to higher mortgage rates, and rising real estate property prices. Any drastic improvement in the near term seems elusive, given the current macro headwinds across the economy.
Currently, Citigroup holds a Zacks Rank #4 (Sell). Some better-ranked major banks worth considering include Bank of America Corp. (BAC) and BB&T Corp. (BBT). Both these banks hold a Zacks Rank # 2 (Buy).