Ancillary fees

  
Mortgage Servicing Rights (MSRs)In connection with the securitization of mortgage loans, Citi’s U.S. consumer mortgage business generally retains the servicing rights, which entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees.These transactions create intangible assets referred to as MSRs, which are recorded at fair value on Citi’s Consolidated Balance Sheet. The fair value of Citi’s capitalized MSRs was $404 million and $336 million at December 31, 2021 and 2020, respectively. The MSRs correspond to principal loan balances of $47 billion and $53 billion as of December 31, 2021 and 2020, respectively. The following table summarizes the changes in capitalized MSRs:  


|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |
| In millions of dollars | 2021 | 2020 |
| Balance, beginning of year | $ | 336  |  | $ | 495  |  |
| Originations | 92  |  | 123  |  |
| Changes in fair value of MSRs due to changes in inputs and assumptions | 43  |  | (204) |  |
| Other changes(1) | (67) |  | (78) |  |
| Sales of MSRs | —  |  | —  |  |
| Balance, as of December 31 | $ | 404  |  | $ | 336  |  |

  
(1)    Represents changes due to customer payments and passage of time.  
The fair value of the MSRs is primarily affected by changes in prepayments of mortgages that result from shifts in mortgage interest rates. Specifically, higher interest rates tend to lead to declining prepayments, which causes the fair value of the MSRs to increase. In managing this risk, Citigroup economically hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase and sale commitments of mortgage-backed securities and purchased securities, all classified as Trading account assets. The Company receives fees during the course of servicing previously securitized mortgages. The amounts of these fees were as follows:  


|  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |
| In millions of dollars |  |  | 2021 | 2020 | 2019 |
| Servicing fees |  |  | $ | 131  |  | $ | 142  |  | $ | 148  |  |
| Late fees |  |  | 3  |  | 5 | 8 |
| Ancillary fees |  |  | —  |  | —  |  | 1 |
| Total MSR fees |  |  | $ | 134  |  | $ | 147  |  | $ | 157  |  |

  
In the Consolidated Statement of Income these fees are primarily classified as Commissions and fees, and changes in MSR fair values are classified as Other revenue.  
Re-securitizationsThe Company engages in re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. Citi did not transfer non-agency (private label) securities to re-securitization entities during the years ended December 31, 2021 and 2020. These securities are backed by either residential or commercial mortgages and are often structured on behalf of clients. As of December 31, 2021 and December 31, 2020, Citi held no retained interests in private label re-securitization transactions structured by Citi. The Company also re-securitizes U.S. government-agency-guaranteed mortgage-backed (agency) securities. During the years ended December 31, 2021 and 2020, Citi transferred agency securities with a fair value of approximately $46.6 billion and $42.8 billion, respectively, to re-securitization entities. As of December 31, 2021, the fair value of Citi-retained interests in agency re-securitization transactions structured by Citi totaled approximately $1.2 billion (including $641 million related to re-securitization transactions executed in 2021) compared to $1.6 billion as of December 31, 2020 (including $916 million related to re-securitization transactions executed in 2020), which is recorded in Trading account assets. The original fair values of agency re-securitization transactions in which Citi holds a retained interest as of December 31, 2021 and 2020 were approximately $78.4 billion and $83.6 billion, respectively.As of December 31, 2021 and 2020, the Company did not consolidate any private label or agency re-securitization entities.  
Citi-Administered Asset-Backed Commercial Paper ConduitsThe Company is active in the asset-backed commercial paper conduit business as administrator of several multi-seller commercial paper conduits and also as a service provider to single-seller and other commercial paper conduits sponsored by third parties.Citi’s multi-seller commercial paper conduits are designed to provide the Company’s clients access to low-cost funding in the commercial paper markets. The conduits purchase assets from or provide financing facilities to clients and are funded by issuing commercial paper to third-party investors. The conduits generally do not purchase assets originated by Citi. The funding of the conduits is facilitated by the liquidity support and credit enhancements provided by the Company.As administrator to Citi’s conduits, the Company is generally responsible for selecting and structuring assets purchased or financed by the conduits, making decisions regarding the funding of the conduits, including determining the tenor and other features of the commercial paper issued, monitoring the quality and performance of the conduits’ assets and facilitating the operations and cash flows of the conduits. In return, the Company earns structuring fees from customers for individual transactions and earns an administration fee from the conduit, which is equal to the income from the client program and liquidity fees of the conduit after payment of conduit expenses. This administration fee is fairly stable, since most risks and rewards of the underlying assets are passed back to the clients. Once the asset pricing is negotiated, most ongoing income, costs and fees are relatively stable as a percentage of the conduit’s size.242
