Feb. 5 (Bloomberg) -- Citigroup Inc., the U.S. bank that’s shedding businesses after last year’s record $18.7 billion loss, agreed to sell the billing-and-collections rights on 185,000 mortgages to Wilbur Ross’s American Home Mortgage Servicing Inc.

Citigroup will get $1.5 billion, Irving, Texas-based American Home said in an e-mailed statement. The amount includes rights to mortgage-servicing fees as well as temporary advances Citigroup made to mortgage investors on behalf of delinquent borrowers, the company said. The transaction had no material impact on overall results, said Mark Rodgers, a spokesman for the New York-based bank.

The deal lets Citigroup wind down Citi Residential Lending, a unit formed in September 2007 when the bank bought mortgage- servicing rights on $45 billion of loans from ACC Capital Holdings, parent of the now-shuttered subprime lender Ameriquest Mortgage Co., Rodgers said. The bank consolidated its mortgage operations in early 2008 and decided not to maintain Citi Residential Lending’s separate platform.

“In order to realize cost efficiencies in the current environment, Citi determined that the sale of these rights was a better alternative to retaining them,” Rodgers said in an interview. As of Sept. 30, Citi Residential held servicing rights on about 247,000 loans, compared with about 6 million for Citigroup’s consumer-banking division.

Mortgage-servicing companies get fees for collecting payments from homeowners and dealing with borrowers who fail to pay.

Wilbur Ross

Ross, who heads the WL Ross & Co. buyout firm, made billions turning around distressed steel and textile companies. He bought American Home in October in a bankruptcy auction. It had been a unit of Melville, New York-based American Home Mortgage Investment Corp.

In an interview, Ross said the Citigroup loans that American Home will service have a face value of $37 billion and include subprime and Alt-A mortgages. The deal, which increases the number of loans American Home services by 45 percent to about 575,000, will improve the overall efficiency of the operations, Ross said.

“The loans are a great fit with our existing portfolio,” American Home Chief Executive Officer David Friedman said in a separate statement distributed by on Business Wire.

Citigroup rose 4 cents to $3.53 at 4:15 p.m. in New York Stock Exchange composite trading. The shares are down 47 percent this year.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: February 5, 2009 17:27 EST