Citigroup Inc.

Payment deferrals that do not continue to accrue interest (extensions)primarily occur in the U.S. residential mortgage business. Under anextension, payments that are contractually due are deferred to a later date,thereby extending the maturity date by the number of months of paymentsbeing deferred. Extensions assist delinquent borrowers who have experiencedshort-term financial difficulties that have been resolved by the time theextension is granted. An extension can only be offered to borrowers who arepast due on their monthly payments but have since demonstrated the abilityand willingness to pay as agreed. Other payment deferrals continue to accrueinterest and are not deemed to offer concessions to the customer. Other typesof concessions are not material.Impact of Modification ProgramsCiti considers various metrics in analyzing the success of U.S. modificationprograms. Payment behavior of customers during the modification (bothshort-term and long-term) is monitored. For short-term modifications,performance is also measured for an additional period of time after theexpiration of the concession. Balance reductions and annualized loss ratesare also important metrics that are monitored. Based on actual experience,program terms, including eligibility criteria, interest charged and loan tenor,may be refined. The main objective of the modification programs is to reducethe payment burden for the borrower and improve the net present value ofCiti’s expected cash flows.Mortgage Modification ProgramsWith respect to long-term mortgage modification programs, formodifications in the “Other” category (as noted in the “Long-TermModification Programs—Summary” table above and preceding narrative),generally at 24 months after modification, the total balance reduction hasbeen approximately 32% (as a percentage of the balance at the time ofmodification), consisting of approximately 20% of paydowns and 12% of netcredit losses. In addition, at 18 months after an “Other” loan modification,Citi currently estimates that credit loss rates are reduced by approximatelyone-third compared to loans that were not modified.For modifications under CFNA’s long-term AOT program, the total balancereduction has been approximately 13% (as a percentage of the balanceat the time of modification) 24 months after modification, consisting ofapproximately 4% of paydowns and 9% of net credit losses.Regarding HAMP, in Citi’s experience to date, Citi continues to believe thatre-default rates for HAMP modified loans will be significantly lower versusnon-HAMP programs. Moreover, the first HAMP modified loans have been onthe books for approximately 12 months and, as of December 31, 2010, wereexhibiting re-default rates of approximately 15%. The CSM program hasless vintage history and limited loss data but is currently tracking to Citi’sexpectations and is currently expected to perform better than the “Other”modifications discussed above. Generally, the other long-term mortgagemodification programs discussed above do not have sufficient history, as ofDecember 31, 2010, to summarize the impact of such programs. Similarly,the short-term AOT program has less vintage history and limited loss data.Cards Modification ProgramsGenerally, at 24 months after modification, the total balance reductionfor long-term card modification programs is approximately 64% (asa percentage of the balance at the time of modification), consisting ofapproximately 35% of paydowns and 29% of net credit losses. Citi has alsogenerally observed that these credit losses are approximately one-halflower, depending upon the individual program and vintage, than thoseof similar card accounts that were not modified. Similarly, twenty-fourmonths after starting a short-term modification, balances are typicallyreduced by approximately 64% (as a percentage of the balance at the time ofmodification), consisting of approximately 24% of paydowns and 40% of netcredit losses, and Citi has observed that the credit losses are approximatelyone-fourth lower, depending upon the individual program and vintage, thanthose of similar accounts that were not modified.As previously disclosed, Citigroup implemented certain changes toits credit card modification programs beginning in the fourth quarterof 2010, including revisions to the eligibility criteria for such programs.These programs are continually evaluated and additional changes mayoccur in 2011, depending upon factors such as program performance andoverall credit conditions. As a result of these changes, as well as the overallimproving portfolio trends, the overall volume of new entrants to Citi’s cardmodification programs decreased, as expected, by approximately 25% duringthe fourth quarter of 2010 as compared to the third quarter. New entrantsto short-term card modification programs decreased by approximately50% in the fourth quarter of 2010 as compared to the prior quarter. WhileCiti currently expects these changes to negatively impact net credit lossesbeginning in 2011, Citi believes overall that net credit losses will continueto improve in 2011 for each of the North America cards businesses. Citiconsidered these changes to its cards modification programs and theirpotential effect on net credit losses in determining the loan loss reserve as ofDecember 31, 2010.Installment Loan Modification ProgramsWith respect to the long-term CFNA AOT program, the total balancereduction is approximately 49% (as a percentage of the balance at the timeof modification) 24 months after modification, consisting of approximately13% of paydowns and 36% of net credit losses. The short-term TemporaryAOT program has less vintage history and limited loss data.109