Citigroup Sells $158 Million of Mortgages to Fund Venture

Citigroup Inc. (C), the third-biggest U.S. bank by assets, sold $158 million of mortgages to a joint venture of two investment funds as the lender disposes of unwanted home loans.

The partnership of Oaktree Capital Group LLC (OAK) and Carrington Holding Co. bought the loans under a program to offer delinquent borrowers an opportunity to rent their homes as an alternative to foreclosure and eviction, the three companies said in a statement. Mark Rodgers, a spokesman for New York-based Citigroup, declined to comment on the purchase price.

Citigroup Chief Executive Officer Vikram Pandit is reducing the bank’s U.S. mortgage portfolio as part of his strategy to offload unwanted assets from the Citi Holdings division, which had $100 billion of home loans in North America at the end of June. The bank sold $500 million of delinquent mortgages in the second quarter, the bank said last month.

“CitiMortgage remains committed to finding solutions that can ease the burdens of distressed homeowners,” Sanjiv Das, head of the bank’s mortgage unit, said in the statement. “The Home Rental Program offers eligible borrowers an option to remain in their homes while avoiding the disruption of foreclosure.”

The portfolio, sold in June, has about 500 loans with an average balance of about $316,000, according to Rick Sharga, vice president at Carrington, based in Santa Ana, California. Borrowers will first be offered loan modifications, including possible principal reductions, before they surrender title to the homes and qualify to rent back the properties, he said.

‘Ideal’ Program

“This is ideal for a family who’s unable to make their mortgage payments but wants to stay in the same home,” Sharga said in a telephone interview.

Candidates must be behind on payments for more than 120 days to enter the program, the companies said. Bank of America Corp., the second-largest U.S. bank by assets, started a program in March allowing delinquent borrowers to rent their homes.

Oaktree Capital is the world’s largest distressed-debt investor. The Los Angeles-based firm, founded by Howard Marks, had $78.7 billion of assets under management at the end of June, according to the statement. Carrington is run by hedge fund manager Bruce Rose.

The rental program will be tested in six markets that have been hit by the housing crisis, including Arizona, California, Florida, Georgia, Nevada and Texas, according to the statement.

Oaktree agreed in January to finance Carrington’s purchase of as much as $450 million in foreclosed homes to manage as rentals, a separate pool of money from the Citigroup portfolio, Sharga said. Carrington currently manages about 4,200 rental homes, which it either owns or oversees for clients such as mortgage financier Fannie Mae.

“Offering alternatives for borrowers looking to stay in their homes and simultaneously relieving their distress is core to the operating principles of our firm and will help substantially in the overall housing market recovery,” Rose said in the statement.

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net; John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net