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June 27, 2017

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Mortgage comeback? Citigroup is not so positive about housing

NEW YORK--Citigroup isn't as enthusiastic as its peers about a comeback in the housing market.

On Friday, executives at Wells Fargo and JPMorgan Chase declared that the long-struggling market had turned a corner. On Monday, Citigroup's top number-cruncher said he wasn't so sure.

In a conference call with reporters after the bank released its quarterly earnings, chief financial officer John Gerspach cautioned that recent history is littered with upturns in the housing market that proved short-lived.

He said that despite a few signs of stabilization in the housing market, there are "still some rather significant challenges to be faced." He warned against predictions with the uncertain presidential election and federal budget still casting a shadow.

"I don't use phrases like 'turn the corner,'" Gerspach said, referring to statements Friday from JPMorgan CEO Jamie Dimon and Wells Fargo finance chief Tim Sloan. "I have difficulty seeing corners sometimes, so I'm not sure what corner we may have turned."

"There's still a question in my mind about whether we've got a strong enough economy to continue sustaining the housing market," he added.

Citigroup reported earnings that beat analysts' expectations, after stripping out one-time items like a big write-down it had to take because it got less money than it had hoped when it negotiated to sell its stake in its retail brokerage.

Investors were pleased with the results and sent the stock up more than 4 percent, rising US$1.55 to US$36.30 in afternoon trading.

Citigroup said that revenue was helped by mortgage refinancing, the same as at Wells Fargo and JPMorgan. Some of that business, however, is fueled by government programs to encourage refinancing. And the banks don't expect the refinancing boom to continue once interest rates start to rise, which could be as early as next year.

Mortgage originations jumped 56 percent at Wells Fargo and 29 percent at JPMorgan compared with a year ago. At Citi, they fell 15 percent.

Mortgages, and the securities they were bundled into, were a scourge during the financial crisis, felling storied financial institutions that made loans that were too risky or bet that securities made of subprime mortgages would keep rising.

The banks' mortgage units are still a magnet for lawsuits and regulatory charges. In August, Citigroup agreed to settle lawsuits from shareholders who said the bank didn't properly warn them of its exposure to risky subprime debt.

Citigroup also reported Monday that it had to set aside more money in case it has to buy back more mortgages from investors who bought them in the run-up to the financial crisis, and now feel ripped off. Gerspach said the bank was seeing "increased activity" in so-called repurchase demands from Freddie Mac, the government-sponsored mortgage giant.

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