Citigroup Inc.

Consumer Mortgage Representations and WarrantiesThe majority of Citi’s exposure to representation and warranty claims relatesto its U.S. Consumer mortgage business.Representation and WarrantiesAs of December 31, 2010, Citi services loans previously sold as follows:In millions December 31, 2010 (1)Vintage sold:Numberof loansUnpaidprincipal balance2005 and prior 1.0 $105,9312006 0.2 34,9692007 0.2 43,7442008 0.3 53,7592009 0.3 60,2932010 0.3 54,936Indemnifications (2) 0.9 102,142Total 3.2 $455,774(1) Excludes the fourth quarter of 2010 sale of servicing rights on 0.1 million loans with unpaid principalbalances of approximately $28,745 million. Citi continues to be exposed to representation andwarranty claims on those loans.(2) Represents loans serviced by CitiMortgage that are covered by indemnification agreements relating toprevious acquisitions of mortgage servicing rights.In addition, since 2000, Citi has sold $94 billion of loans to privateinvestors, of which $49 billion were sold through securitizations. As ofDecember 31, 2010, $39 billion of these loans (including $15 billion soldthrough securitizations) continue to be serviced by Citi and are included inthe $456 billion of serviced loans above.When selling a loan, Citi (through its CitiMortgage business) makesvarious representations and warranties relating to, among other things, thefollowing:• Citi’s ownership of the loan;• the validity of the lien securing the loan;• the absence of delinquent taxes or liens against the property securing the loan;• the effectiveness of title insurance on the property securing the loan;• the process used in selecting the loans for inclusion in a transaction;• the loan’s compliance with any applicable loan criteria established by thebuyer; and• the loan’s compliance with applicable local, state and federal laws.The specific representations and warranties made by Citi depend onthe nature of the transaction and the requirements of the buyer. Marketconditions and credit-rating agency requirements may also affectrepresentations and warranties and the other provisions to which Citi mayagree in loan sales.Repurchases or “Make-Whole” PaymentsIn the event of a breach of these representations and warranties, Citimay be required to either repurchase the mortgage loans (generallyat unpaid principal balance plus accrued interest) with the identifieddefects, or indemnify (“make-whole”) the investors for their losses. Citi’srepresentations and warranties are generally not subject to stated limits inamount or time of coverage. However, contractual liability arises only whenthe representations and warranties are breached and generally only when aloss results from the breach.For the years ended December 31, 2010 and 2009, 77% and 64%,respectively, of Citi’s repurchases and make-whole payments were attributableto misrepresentation of facts by either the borrower or a third party (e.g.,income, employment, debts, FICO, etc.), appraisal issues (e.g., an error ormisrepresentation of value), or program requirements (e.g., a loan that doesnot meet investor guidelines, such as contractual interest rate). To date, therehas not been a meaningful difference in incurred or estimated loss for eachtype of defect.In the case of a repurchase, Citi will bear any subsequent credit loss onthe mortgage loan and the loan is typically considered a credit-impairedloan and accounted for under SOP 03-3, “Accounting for Certain Loans andDebt Securities, Acquired in a Transfer” (now incorporated into ASC 310-30,Receivables—Loans and Debt Securities Acquired with Deteriorated CreditQuality). These repurchases have not had a material impact on Citi’s nonperformingloan statistics because credit-impaired purchased SOP 03-3 loansare not included in non-accrual loans, since they generally continue to accrueinterest until write-off.The unpaid principal balance of loans repurchased due to representationand warranty claims for the years ended December 31, 2010 and 2009,respectively, was as follows:Year ended December 31,2010 2009In millions of dollarsUnpaid principalbalanceUnpaid principalbalanceGSEs $280 $268Private investors 26 22Total $306 $290As evidenced in the table above, to date, Citi’s repurchases have primarilybeen from the U.S. government sponsored entities (GSEs). In addition, Citirecorded make-whole payments of $310 million and $49 million for theyears ended December 31, 2010 and 2009, respectively.110