Citigroup Inc.

Securities and Banking-Sponsored Private Label ResidentialMortgage Securitizations—Representations and WarrantiesOver the years, S&B has been a sponsor of private-label mortgage-backedsecuritizations. Mortgage securitizations sponsored by Citi’s S&B businessrepresent a much smaller portion of Citi’s mortgage business than Citi’sConsumer business discussed above.During the period 2005 through 2008, S&B sponsored approximately$66 billion in private-label mortgage-backed securitization transactions,of which approximately $28 billion remained outstanding at December 31,2010. These outstanding transactions are backed by loan collateral composedof approximately $7.4 billion prime, $5.9 billion Alt-A and $14.3 billionsubprime residential mortgage loans. Citi estimates the actual cumulativelosses to date incurred by the issuing trusts on the $66 billion totaltransactions referenced above have been approximately $6.7 billion.The mortgages included in these securitizations were purchased fromparties outside of S&B, and fewer than 3% of the mortgages currentlyoutstanding were originated by Citi. In addition, fewer than 10% of thecurrently outstanding mortgage loans underlying these securitizationtransactions are serviced by Citi. The loans serviced by Citi are included inthe $456 billion of residential mortgage loans referenced under “ConsumerMortgage Representations and Warranties” above. (Citi acts as masterservicer for certain of the securitization transactions.)In connection with such transactions, representations and warranties(representations) relating to the mortgage loans included in each trustissuing the securities were made either by (1) Citi, or (2) in a relatively smallnumber of cases, third-party sellers (Selling Entities, which were also oftenthe originators of the loans). These representations were generally made orassigned to the issuing trust.The representations in these securitization transactions generally related to,among other things, the following:• the absence of fraud on the part of the mortgage loan borrower, the selleror any appraiser, broker or other party involved in the origination of themortgage loan (which was sometimes wholly or partially limited to theknowledge of the representation provider);• whether the mortgage property was occupied by the borrower as his or herprincipal residence;• the mortgage loan’s compliance with applicable federal, state and local laws;• whether the mortgage loan was originated in conformity with theoriginator’s underwriting guidelines; and• the detailed data concerning the mortgage loans that was included on themortgage loan schedule.The specific representations relating to the mortgage loans in eachsecuritization may vary, however, depending on various factors such as theSelling Entity, rating agency requirements and whether the mortgage loanswere considered prime, Alt-A or subprime in credit quality.In the event of a breach of its representations, Citi may be required either torepurchase the mortgage loans with the identified defects (generally at unpaidprincipal balance plus accrued interest) or indemnify the investors for their losses.For securitizations in which Citi made representations, theserepresentations typically were similar to those provided to Citi by the SellingEntities, with the exception of certain limited representations required byrating agencies. These latter representations overlapped in some cases withthe representations described above.In cases where Citi made representations and also received thoserepresentations from the Selling Entity for that loan, if Citi is the subject of aclaim based on breach of those representations in respect of that loan, it mayhave a contractual right to pursue a similar (back-to-back) claim againstthe Selling Entity. If only the Selling Entity made representations, thenonly the Selling Entity should be responsible for a claim based on breach ofthese representations in respect of that loan. (This discussion only relates tocontractual claims based on breaches of representations.)However, in some cases where Citi made representations and receivedsimilar representations from Selling Entities, including a majority of suchcases involving subprime and Alt-A collateral, Citi believes that those SellingEntities appear to be in bankruptcy, liquidation or financial distress. In thosecases, in the event that claims for breaches of representations were to bemade against Citi, the Selling Entities’ financial condition may effectivelypreclude Citi from obtaining back-to-back recoveries against them.To date, S&B has received only a small number of claims basedon breaches of representations relating to the mortgage loans in thesesecuritization transactions. Citi continues to monitor closely this claimactivity relating to its S&B mortgage securitizations.In addition to sponsoring residential mortgage securitization transactionsas described above, S&B engages in other residential mortgage-relatedactivities, including underwriting of residential mortgage-backed securities.S&B participated in the underwriting of these S&B-sponsored securitizations,as well as underwritings of other residential mortgage-backed securitiessponsored and issued by third parties.For additional information on litigation claims relating to these activities,see Note 29 to the Consolidated Financial Statements.113