Citi Becomes Latest Bank to Cut Off Mortgage Brokers

Associated Press
Citi wants to focus on making mortgages through its own retail distribution network, including bank branches.

By Matthias Rieker

Citi put another nail in the coffin of the mortgage brokerage business: It will stop originating home loans through brokers.

The move shows once again how the financial crisis is reshaping the mortgage industry.

Like many banks, Citigroup Inc. had already reduced the number of mortgage brokers it was doing business with during the height of the mortgage meltdown in 2008. But unlike J.P. Morgan Chase & Co., Bank of America Corp. and other mortgage lenders, it hadn’t entirely cut off brokers.

Banks have blamed brokers, who originated the majority of mortgages before the financial crisis, for badly underwritten loans and now want to be in full control of the underwriting process to reduce risk. Further, banks want to deal with customers directly, hoping they can turn mortgage borrowers into checking account and credit card customers.

Citi, one of the U.S.’s largest mortgage lenders, wants to focus on making mortgages through its own retail distribution network, including bank branches. Also, the bank will continue to make mortgage through correspondent banks, a business Bank of America has recently decided to exit.

Citi is the nation’s third-largest bank by assets and was the fourth-largest mortgage originator with a 5% market share, according to Inside Mortgage Finance, the residential mortgage publication.

A Citi spokesman said the bank anticipates that the majority of employees within the brokered mortgage business will find other positions at Citi’s mortgage business. Citi will stop accepting mortgage applications at noon on Feb. 8, the spokesman said Wednesday.

Citi made $68 billion of mortgages last year; Wells Fargo & Co., the nation’s largest originator, made $362 billion; it continues to make brokered mortgages.

In the first three quarters last year, Citi originated $3.9 billion of mortgages through brokers, according to Inside Mortgage Finance; Citi could lose about $6 billion of mortgages per year made through brokers, said Guy Cecala, the publisher of Inside Mortgage Finance.

The correspondent mortgage business, where mainly community banks make mortgages for big bank like Citi, is much larger, and Citi likely gained from Bank of America’s exit, Mr. Cecala said. Citi made $20.2 billion in correspondent mortgages in the first three quarters last year.

“Nobody cares about mortgage brokers, they were thrown under the bus in 2008,” Mr. Cecala said.

Eric Weinstein, who was the Chief Executive of Carteret Mortgage Corp., a Centerville, Va., mortgage broker that went out of business in 2008, said “mortgage brokers became the scapegoat” for the mortgage crisis.

“I still believe brokers were more efficient” than banks in originating mortgages, and their demise will increase prices for homeowners, Mr. Weinstein said. He is now a loan officer for 1st Commonwealth Bank of Virginia, in Arlington.

Cece Stewart, Citi’s head of North American retail banking, said Citi made $8 billion of mortgages through its 1,016 bank branches last year, compared with $6 billion in 2010. At the end of last month, Citi already had a $4.9 billion mortgage pipeline through branches, she said.

Write to Matthias Rieker at matthias.rieker@dowjones.com

New Player Enters for Grubb & Ellis

Bloomberg News
Howard Lutnick, chief executive of Cantor Fitzgerald

By Eliot Brown and Kris Hudson

In the race to control Grubb & Ellis Co., there’s a new big name circling over the commercial real estate services firm: Howard Lutnick.

BGC Partners LP, an affiliate of Mr. Lutnick’s Cantor Fitzgerald, on Monday signed a two-week exclusivity agreement with Grubb & Ellis to potentially purchase or recapitalize the struggling Los Angeles-based company, according to a Grubb & Ellis securities filing and a person familiar with the matter.

The agreement with the affiliate of Cantor, which has been growing its real estate investments and bought brokerage Newmark Knight Frank, comes as Grubb & Ellis saw a similar agreement with two other opportunistic investors fizzle.

An exclusivity agreement with C-III Investments LLC, which focuses on distressed real estate and is led by Andrew Farkas, and Colony Capital LLC, run by Tom Barrack, expired on Sunday without a deal.

No deal materialized, in part, because of the complexity of the deal and multiple layers of creditors, a person familiar with the deal said.

Of course, it couldn’t hurt Grubb to strike a deal sooner rather than later with any of its suitors. The company on Jan. 3 was de-listed from the New York Stock Exchange because its market capitalization had fallen below $15 million.

Square Feet | The 30-Minute Interview: The 30-Minute Interview — Elizabeth F. Stribling

Ms. Stribling, 67, is the president and a founder of Stribling & Associates, a real estate brokerage and marketing firm based in New York.



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Ms. Stacom is a vice chairwoman of the commercial real estate brokerage firm Cushman & Wakefield, providing both tenant representation and landlord leasing services to a wide array of prominent clients.



Report: Bull Run in the Apartment Market

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The U.S. apartment sector powered through last summer’s economic doldrums to record strong occupancy rates and rental gains in 2011, and the market should remain upbeat this year, brokerage Marcus & Millichap writes in a report.

As we’ve written, the rental market is thriving as millions of Americans — many of them burned by the housing crash — opt to rent homes instead of buy them. This comes as little new supply has been added the market, creating a sweet spot for landlords who are raising rents.

That’s quite the turnaround from the days following the financial crisis, when desperate landlords had to slash rents and offer freebies like flat screen televisions to keep units filled. “The multifamily sector continued its marathon-like recovery in 2011, and has entered full expansion mode in virtually every market,” says Hessam Nadji, the firm’s managing director of research and advisory services.

Marcus & Millichap expects the vacancy rate to dip to 5% by the end of the year, a 40-basis-point decline since 2011. (Reis Inc. puts the current vacancy rate at 5.2%.) With so few apartments up for grabs, rents could grow by a 4.8%.

To be sure, plenty of things could slow the success. Europe remains a trouble spot, as does the U.S. economy. Should it weaken further, renters could double up with roommates or move in with mom and dad. And if landlords raise rents too much, they risk pushing the tenants to buy low-priced homes.

Still, Marcus & Millichap points out that there will still be plenty of potential renters: Household formations, which fell during the downturn, are forecast to spike 29% to an annual average of 1.4 million through 2015, boosted by 2.1 million “echo boomers” hitting prime renting age.

The firm’s National Apartment Index, which ranks 44 major apartment markets based on a series of 12-month, forward-looking economic and supply-and-demand variables, puts the Bay Area – San Jose and San Francisco – at the top as they continue benefiting from the technology sector. New York comes in at #3. The worst performer is expected to be Jacksonville, Fla.

Meanwhile, investment sales activity is expected to rebound. (That’s already happening – UDR and MetLife just purchased five Manhattan skyscrapers.) “Sales volume will rise as risk tolerance expands and capital becomes more fluid. Expect higher levels of workout activity from banks and lenders,” says John Sebree, national director the firm’s National Multi Housing Group. Also, “expect higher levels of workout activity from banks and lenders.”

Follow Dawn @dwotapka