Citigroup Inc.

Loans included in the HAMP trial period are not classified as modified undershort-term or long-term programs, and the allowance for loan losses for theseloans is calculated under ASC 450-20.As of December 31, 2010, for the loans that were put in the HAMP trialperiod, 34% of the loans were successfully modified under HAMP, 13% weremodified under the Citi Supplemental program (see below), 5% were in HAMPor Citi Supplemental trial, 2% subsequently received other Citi modifications,13% received HAMP re-age (see below), and 33% have not received anymodification from Citi to date.Citi Supplemental. The Citi Supplemental (CSM) program wasdesigned by Citi to assist borrowers ineligible for HAMP or who becomeineligible through the HAMP trial period process. If the borrower already hasless than a 31% housing debt ratio, the modification offered is an interest ratereduction (up to 2.5% with a floor rate of 4%), which is in effect for two years,and the rate then increases up to 1% per year until the interest rate is at thepre-modified contractual rate. If the borrower’s housing debt ratio is greaterthan 31%, specific treatment steps for HAMP, including an interest ratereduction, will be followed to achieve a 31% housing debt ratio. The modifiedinterest rate is in effect for two years, and then increases up to 1% per yearuntil the interest rate is at the pre-modified contractual rate. If incomedocumentation was not supplied previously pursuant to HAMP, it is requiredfor CSM. Three trial payments are required prior to modification, which canbe made during the HAMP and/or CSM trial period.HAMP Re-Age. As disclosed above, loans in the HAMP trial period areaged according to their original contractual terms, rather than the modifiedHAMP terms. This results in the loan being reported as delinquent even if thereduced payments, as agreed under the program, are made by the borrower.Upon conclusion of the trial period, loans that do not qualify for a long-termmodification are returned to the delinquency status in which they began theirtrial period. However, that delinquency status would be further deterioratedfor each trial payment not made. HAMP re-age establishes a non-interestbearingdeferral based on the difference between the original contractualamounts due and the HAMP trial payments made. Citigroup considersthis re-age and deferral process to constitute a concession to a borrower infinancial difficulty and therefore records the loans as TDRs upon re-age.2nd FDIC. The 2nd FDIC modification program guidelines werecreated by the FDIC for delinquent or current borrowers where default isreasonably foreseeable. The program is designed for second mortgages anduses various concessions, including interest rate reductions, non-interestbearingprincipal deferral, principal forgiveness, extending maturity dates,and forgiving accrued interest and late fees. These potential concessions areapplied in a series of steps (similar to HAMP) that provides an affordablepayment to the borrower (generally a combined housing payment ratio of42%). The first step generally reduces the borrower’s interest rate to 2% forfixed-rate home equity loans and 0.5% for home equity lines of credit. Theinterest rate reduction is in effect for the remaining term of the loan.FHA/VA. Loans guaranteed by the FHA or VA are modified through thenormal modification process required by those respective agencies. Borrowersmust be delinquent, and concessions include interest rate reductions,principal forgiveness, extending maturity dates, and forgiving accruedinterest and late fees. The interest rate reduction is in effect for the remainingloan term. Losses on FHA loans are borne by the sponsoring agency, providedthat the insurance has not been breached as a result of an origination defect.The VA establishes a loan-level loss cap, beyond which Citi is liable for loss.Historically, Citi’s losses on FHA and VA loans have been negligible.Responsible Lending. The Responsible Lending (RL) program wasdesigned by Citi to assist current borrowers unlikely to be able to refinancedue to negative equity in their home and/or other borrower characteristics.These loans are not eligible for modification under HAMP or CSM. Thisprogram, launched in the fourth quarter of 2010, is designed to providepayment relief based on a floor interest rate by product type. All adjustablerate and interest only loans are converted to fixed rate, amortizing loansfor the remaining mortgage term. Because the borrower has been offeredterms that are not available in the general market, the loan is accountedfor as a TDR.CFNA Adjustment of Terms (AOT). This program is targetedto Consumer Finance customers with a permanent hardship. Paymentreduction is provided through the re-amortization of the remaining loanbalance, typically at a lower interest rate. Modified loan tenors may notexceed a period of 480 months. Generally, the rescheduled payment cannotbe less than 50% of the original payment amount unless the AOT is a result ofparticipation in the CitiFinancial Home Affordability Modification Program(CHAMP) (terminated August 2010) or as a result of settlement, court order,judgment, or bankruptcy. Customers must make a qualifying payment atthe reduced payment amount in order to qualify for the modification. Inaddition, customers must provide income verification (pay stubs and/ortax returns), employment is verified and monthly obligations are validatedthrough an updated credit report.Other. Prior to the implementation of the HAMP, CSM and 2nd FDICprograms, Citigroup’s U.S. mortgage business offered certain borrowersvarious tailored modifications, which included reducing interest rates,extending the remaining loan duration and/or waiving a portion of theremaining principal balance. Citigroup currently believes that substantiallyall of its future long-term U.S. mortgage modifications, at least in the nearterm, will be included in the programs mentioned above.106