Citigroup (C) continued to shrink its troubled mortgage portfolio in the first quarter by converting more permanent modifications and selling delinquent loans. Citi reported $7.8 billion in delinquent first-lien mortgages for the first quarter, a 45% drop from one year ago. The peak came in the third quarter of 2009 when Citi held nearly $17 billion in troubled loans. Citi Chief Financial Officer John Gerspach said in a conference call with investors Monday the bank sold $1.1 billion in delinquent mortgages during the quarter. CEO Vikram Pandit added that over the last five quarters, Citi sold $10 billion in mortgages from its improving Citi Holdings portfolio. Of that, $6 billion were delinquent loans. “We continue to actively manage that,” Pandit said. “We’ve been active sellers over the last five quarters.” The bank also converted $5.3 billion in mortgages from trial to permanent modification in the first quarter. More than 75% were done through the Home Affordable Modification Program. Redefault rates in the program, at least on Citi loans, stands at less than 15%, compared to a 25% redefault rate on proprietary mods. While Citi reported a 32% drop in earnings for the first quarter, it continued to cut its Holdings portfolio to $337 billion. It stands 59% below the $827 billion peak in the first quarter of 2008. But the door swings both ways. Citi reported $151 million in losses from buying back faulty mortgages from both the government-sponsored enterprises and private entities. The loss is down from $235 million in the previous quarter. Citi even reduced its repurchase reserve balance to $944 million in the first quarter, down from $969 million in the previous period. Gerspach said while the sales will continue for some time, so will losses from Citi Holdings. “We’re going to continue to wind down Citi Holdings,” Gerspach said. “It will be a drain on our income for a while. As we continue to wind down those assets, you’re going to see reduced income.” Write to Jon Prior. Follow him on Twitter @JonAPrior.