NEW YORK (MarketWatch) — In the latest sign of mortgage-industry retrenchment by a major U.S. bank, Citigroup said Thursday it will reduce its mortgage assets by $45 billion over the next 12 months.

The move, announced after the closing bell, represents a 20% cut in the value of mortgages held by Citi as of December, the most recent period detailed by the bank.

Citi Group, Inc., which also will consolidate three different U.S. mortgage subsidiaries into a single division, said its quick pullback from the market will allow it to lower expenses by $200 million during the next year.

“This end-to-end realignment will create a simplified and streamlined organization that is more sharply focused on clients and able to direct resources to the business lines and customer segments with the highest growth potential,” Bill Beckmann, president of the company’s mortgage unit, said in a statement.

As part of the reorganization, Citi by the third quarter intends to run about 90% of its mortgage business under its CitiMortgage unit, up from 65% previously. That unit will take over loans that were held by the Citi Home Equity and Citi Residential Lending units.

“These changes will enable us to manage the business unit’s capital for enhanced returns,” Beckmann said.

Analysts have estimated that Citi could see a first-quarter loss of at least $14 billion from debt tied to subprime mortgages. The bank still had $43 billion in exposure to leveraged loans and $20 billion in commercial real estate loans at the end of the fourth quarter.

On Wednesday, Citigroup CEO Vikram Pandit attempted to allay investor concerns about the bank’s future exposure to securities-related losses. He said the company had a new approach to risk management under the leadership of Brian Leach, newly appointed as chief risk officer.

In a possible hint of signs that the bank would cut back its mortgage operations, Pandit said in an internal memo that it would continue to divest itself of “peripheral businesses.” He said the bank would also focus on raising capital.

“We are well capitalized and extremely focused on the strength of our balance sheet,” Pandit said.

“We remain concerned about loss-provision potential, the direction of long-term strategy and weak markets for the capital-markets businesses,” analysts Guy Moszkowski and M. Patrick Davitt of Merrill wrote in a research note.

(Keep reading if you want my Attorney’s take on this article!)

“What does this mean?  The markets are finally starting to readjust and bring prices down. However, the cost of getting loans done will go up (they always do from what I heard). This means that you absolutely MUST have a rock-solid plan in place when you are acquiring properties.  I am experiencing some slowness in the market now. But, make sure your financing will not bankrupt you while you wait to either flip your property or get good tenants in the place.”

-JA