Citigroup Inc., the nation's largest financial services company, has cut loose more than 3,600 loan brokers and 300 correspondent lenders which did business with Associates First Capital Corp..

Citigroup, which acquired the Associates last year, also has postponed more than 1,269 pending foreclosures, mostly on loans that had been generated by the Associates in one way or another.

The suspensions are a direct result of a series of initiatives announced by Citigroup in November to quell objections to the acquisition by community groups, government regulators and consumer advocates. And they are a serious indictment of not just the way the Associates did business but also of the entire mortgage brokerage business -- a business which now originates upwards of 60 percent of all home loans.

Previously, Citigroup announced it would discontinue the sale of single premium credit life insurance, a profitable side business that critics maintain is too costly because it is financed over the life of the loan yet often covers less than the full loan term.

The brokers who had done business with the firm were severed for one or more reasons, among them inadequate or suspended state licenses; a failure to bring in regular, quality business; integrity concerns, or failing to acknowledge a code of conduct established by CitiFinancial, the Citigroup division which makes loans secured by real estate.

In total, the 3,622 who were let go amounted to almost two-thirds of the brokers who had been on the Associates' list of approved brokers.

The number of correspondents on the Associates' active list was much smaller, only 568. But 53 percent were dropped after their names were run through a national fraud data base and a review of their files was undertaken.

A two-stage review process also was made of all loan files submitted to Citigroup's foreclosure department for action. And, as community groups had maintained, it was found that many former Associates customers were in danger of losing their homes because of unfair or unscrupulous lending practices.

Robert Willumstad, chairman of the Citigroup Consumer Group, did not reveal why the foreclosures were halted, saying only that files were reviewed to "ensure that no customer loses his or her home for inappropriate reasons."

But the report said reviewers looked for cases in which, among other things, loans carried inordinately high rates or were packed with fees, made to borrowers with extreme low credit scores, had loan-to-value ratios of less than 50 percent and/or debt-to-income ratios greater than 50 percent, and contained balloon payments.

All of these are unfair practices which consumer advocates say crafty lenders use to take advantage of unsuspecting consumers.

However, another CitiFinanical experiment to appease community groups by limiting total broker compensation to 3 percent of the loan amount has proved unsuccessful. After trying to sell the idea to brokers in Illinois and Maryland, the company found that brokers would rather take their business elsewhere than accept a lid on fees.

During a fourth-month, February-May test period, the company booked an average of only eight loans a month in Illinois and just four per month in Maryland. Before the test, the company was taking an average of 52 loans monthly in Illinois and 23 in Maryland.

For more articles by Lew Sichelman, please press here.

Published: September 5, 2001

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.