CitiFinancial Updates Industry-Leading Lending Practices

NEW YORK – In a powerful display of public, private and community cooperation to better serve the nation’s borrowers, CitiFinancial today teamed up with Senator Paul Sarbanes, D-MD, Leadership Conference on Civil Rights (LCCR), Self Help Credit Union and Center for Responsible Lending (CRL), and AARP to highlight the ongoing progress on CitiFinancial’s industry-leading real estate lending practices.

The updates highlighted today include: introducing a product to offer higher credit-quality customers a lower-rate loan, reducing the maximum prepayment penalty, and eliminating mandatory arbitration provisions on real estate secured loans later this year.

CitiFinancial is a leader in providing access to credit to those not historically served by the traditional financial services marketplace, offering innovative products, superior service and competitive pricing. Through its efforts, CitiFinancial has helped millions of people to realize their financial goals and dreams.

“Our goal is to be the most respected global financial services company,” said Marge Magner, Chairman and CEO of Citigroup’s Global Consumer Group. “The initiatives we’ve taken in our consumer finance real estate lending business in the United States and the recognition that our industry-leading practices have received show the significant progress that we’ve made.”

Over the last three years CitiFinancial, in consultation with community groups and lawmakers, has adopted industry-leading policies and practices, setting an example of excellence in the consumer finance business. Among the significant changes, CitiFinancial:

• Lowered the maximum origination points charged on retail originated real estate loans from five to three points.

• Lowered term of prepayment penalties from five years to three years.

• Reduced the maximum prepayment penalty to 3% of the loan amount in the first year, 2% in the second, and 1% in the third; implementation to be completed in remaining geographies by 3Q 05.

• Limits lender’s yield-spread premium to 2% of the loan amount in its wholesale channel.

• Implemented a policy to not originate HOEPA loans in CitiFinancial, beginning with the branch network.

• Introduced Customer First, a credit insurance sales process that ensures all customers understand their loan terms and make informed choices about any optional products they purchase.

• Committed to developing a net tangible benefit test for all real estate secured loans in partnership with our community partners.

• Committed to eliminate mandatory arbitration provisions on real estate secured loans originated after August 2005.

In addition, to better serve its customers, CitiFinancial today offers myriad opportunities for borrowers to lower their loan rate as their credit improves, such as:

• A Preferred Fixed Rate mortgage product, which allows applicants to qualify for a rate comparable to Citigroup’s prime channels while remaining with CitiFinancial.

• A Rate Reduction program, where customers with lower credit quality and who consistently make on-time payments are rewarded with lower interest rates for the remaining life of their loan.

• A Graduation Loan, which rewards existing CitiFinancial customers whose credit improves and who qualify for lower-cost loans with an offer to apply for a near prime interest rate real estate product.

In the past four years, more than 100,000 customers have received access to lower-cost credit as a result of these programs.

Said Senator Sarbanes: “CitiFinancial has made significant progress with its lending initiatives. The steps it has announced today, including limiting the lender’s yield-spread premium and prepayment penalties, and eliminating mandatory arbitration provisions in real estate secured lending, place CitiFinancial in a leadership position in raising lending standards in the consumer finance mortgage industry.”

Martin Eakes, CEO of Self Help Credit Union and CRL, said, “CitiFinancial’s enhanced set of real estate lending initiatives is an impressive step forward. The elimination of mandatory arbitration provisions for real estate secured loans allows those customers to choose how best to resolve disputes with the company. With its limit on origination fees and its 3-2-1 limit on prepayment penalties, CitiFinancial has become one of the industry leaders against the fee-based loss of home equity by credit-impaired borrowers. Finally, CitiFinancial’s 2% limit on lender’s yield-spread premium is an important step toward preventing the steering of unsophisticated borrowers to higher interest rates than those for which the borrower qualifies.”

Wade Henderson, Executive Director of LCCR said, “Today some consumer finance lending practices represent a great threat to families working to achieve financial security. Such practices have had particular effect on the elderly, members of minority groups, lower-income borrowers, and female single-heads of households. CitiFinancial’s enhanced lending practices – and in particular the elimination of mandatory arbitration provisions on real estate secured loans, as well as the limit on prepayment penalties and origination fees – are important steps in raising the standards of the industry and helping the market work more fairly.”

Chris Hansen, Associate Executive Director of AARP, said: “AARP commends CitiFinancial’s recent steps to raise the bar on consumer finance mortgage lending practices. In particular, eliminating mandatory arbitration provisions in real estate secured lending will help restore fairness and balance to the lender/homebuyer relationship, and sets a good precedent for the industry. By significantly raising the standards of its lending practices to its customers, CitiFinancial has demonstrated with its announcement today that good service and good business need not be a contradiction in terms.”

Kevin Kessinger, Executive Vice President of Citigroup’s Global Consumer Group and President of Consumer Finance North America, said the recognition by Senator Sarbanes, Leadership Conference on Civil Rights, Self Help Credit Union and CRL, and AARP reinforces CitiFinancial’s position as an industry leader and illustrates how private companies, community groups and respected lawmakers can work together through constructive dialogue to achieve their common goals of making access to credit available at competitive rates for as many Americans as possible.

“We are thrilled to receive the support of Senator Sarbanes, Leadership Conference on Civil Rights, Self Help Credit Union and CRL, and AARP,” said Mr. Kessinger. “By standing together, we can use our collective efforts to improve the lives of our customers and create stable, healthy communities for the long term.”

Reflecting on the latest enhancements, Mr. Kessinger said, “CitiFinancial offers customers with higher-quality credit a rate comparable to our prime channels. This illustrates CitiFinancial’s commitment to pricing customers based on their creditworthiness.” With respect to prepayment penalties, which are limited in term and decline over time, “our new limits reduce the potential impact to the borrower while protecting CitiFinancial’s ability to recover the upfront cost of making the loan in the event of early payment,” he said.

“In addition, our recent decision to stop using mandatory arbitration on real estate secured loans at CitiFinancial aligns Citigroup’s lending policies across all of its mortgage lending businesses,” Mr. Kessinger said. “Taken together, these are all great steps for our customers.”