Citigroup (NYSE:C) Back into Mortgage-backed Securities Again

For the first time in over two years, Citigroup (NYSE:C) has entered the mortgage-backed securities market, this time with 255 new mortgages backing the bonds offered.

The loans backing the bonds were made over the last year by Citigroup, and is underwriting potential sale of about $222.4 million in bonds using the mortgages as collateral. J.P. Morgan (NYSE:JPM) is co-managing the deal.

Sponsoring the securitization of the private sale is real estate investment trust company Redwood Trust Inc., a REIT whose specialty is jumbo-mortgage assets.

The mortgages are of high-end homes, as the average mortgage is for $932,699, with an overall value of $237.8 million. The terms of the mortgages are for the first five years they are adjustable loans with fixed rates, with close to $175.4 million of that value requiring borrowers to pay only interest on the loans for 10 years.

In the mortgage-bond market, the most important element of a deal like this to investors is the loan-to-value ratios, which in this instance are 60.4 percent. A loan-to-value ratio refers to the size of the original mortgage in contrast to the actual value of the property.

The average monthly income of the borrowers showed these were very safe borrowers, as it came in at just under $54,000 a month, which was close to $650,000 a year.

With this being the first one attempted for some time, it will be assured the chance of default or failure is minimal. Now if the banks can only keep that as part of their operational procedure and not fall back into old bad habits.