citimortgage fraud - citibank fraud -...

citimortgage fraud - citibank fraud - citigroup fraud

Posted in the Beaufort Forum


Warsaw, NC

#1 Sep 20, 2012
Sherry Hunt, who worked at quality control at Citi's mortgage unit for eight years, routinely filed reports on flawed mortgages to her bosses before suing the bank. A Citigroup executive who blew the whistle on the bank, detailing how they continued to buy and sell flawed home loans, even into 2012.
Hunt supervised 65 mortgage underwriters at CitiMortgage’s sprawling headquarters in O’Fallon, MO Hunt’s team was responsible for protecting Citigroup from fraud and bad investments. She and her colleagues inspected loans Citi wanted to buy from outside brokers and lenders to see whether they met the bank’s standards. The mortgages had to have properly signed paperwork, verifiable borrower income and realistic appraisals.
Citi would vouch for the quality of these loans when it sold them to investors or approved them for government mortgage insurance.
Investor demand was so strong for mortgages packaged into securities that Citigroup couldn’t process them fast enough. The Citi stamp of approval told investors that the bank would stand behind the mortgages if borrowers quit paying.
At the mortgage-processing factory in O’Fallon, Hunt was working on an assembly line that helped inflate a housing bubble whose implosion would shake the world. The O’Fallon mortgage machinery was moving too fast to check every loan. Phony Appraisals
By 2006, the bank was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures, she says. It was Hunt’s job to identify these defects, and she did, in regular reports to her bosses.Executives buried her findings,before, during and after the financial crisis, and even into 2012. In March 2011, more than two years after Citigroup took $45 billion in bailouts from the U.S. government and billions more from the Federal Reserve -MORE in total than any other U.S. bank -- Jeffery Polkinghorne, an O’Fallon executive in charge of loan quality, asked Hunt and a colleague to stay in a conference room after a meeting. The encounter with Polkinghorne was brief and tense. The number of loans classified as defective would have to fall,or it would be “your asses on the line.
“All a dishonest person had to do was change the reports to make things look better than they were,” Hunt says.“I wouldn’t play along.”
Instead, she took her employer to court -- and won. In August 2011, five months after the meeting with Polkinghorne, Hunt sued Citigroup in Manhattan federal court, accusing its home-loan division of systematically violating U.S. mortgage regulations.
The U.S. Justice Department decided to join her suit in January. Citigroup didn’t dispute any of Hunt’s facts; it didn’t mount a defense in public or in court. On Feb. 15, 2012, the bank agreed to pay $158.3 million to the U.S. government to settle the case.
Citigroup admitted approving loans for government insurance that didn’t qualify under FHA rules. Prosecutors kept open the possibility of bringing criminal charges, without specifying targets.Citigroup behaving badly as late as 2012 shows how a big bank hasn’t yet absorbed the lessons of the credit crisis despite billions of dollars in bailouts, says Neil Barofsky, former special inspector general of the Troubled Asset Relief Program.
“This case demonstrates that the notion that the bailed-out banks have somehow found God and have reformed their ways in the aftermath of the financial crisis is pure myth,” As a reward for blowing the whistle on her employer, Hunt, the country girl turned banker, got $31 million out of the settlement paid by Citigroup.
Inside are endless rows of cubicles where 3,800 employees trade e-mails and conduct conference calls.All of them focused on keeping home loans moving through the system. One team bought loans from brokers and other lenders. Another team, called underwriters, made sure loan paperwork was complete and the mortgages met the bank’s and the government’s guidelines.

Warsaw, NC

#2 Sep 20, 2012
Yet another group did spot-checks on loans already purchased. It was such a high-volume business that one group’s assignment was simply to keep loans moving on the assembly line.Still another unit sold loans to Fannie Mae, the government-controlled companies that bundled them into securities for sale to investors. Those were the types of securities that blew up in 2007, igniting a global financial crisis. Workers had a powerful incentive to push mortgages through the process even if flaws were found: compensation. The pay of CitiMortgage employees all the way up to the division’s chief executive officer depended on a high percentage of approved loans, the government’s complaint says.
By 2006, Hunt’s team was processing $50 billion in loans that Citi-Mortgage bought from hundreds of mortgage companies. Because her unit couldn’t possibly review them all, they checked a sample.
When a mortgage wasn’t up to federal standards -- which could be any error ranging from an unsigned document to a false income statement or a hyped-up appraisal -- her team labeled the loan as defective.In late 2007, Hunt’s group estimated that about 60 percent of the mortgages Citigroup was buying and selling were missing some form of documentation. Hunt says she took her concerns to her boss, Richard Bowen III, 64, When he saw the magnitude of the mortgage defects, Bowen says he prayed for guidance.
In a Nov. 3, 2007, e-mail, he alerted Citigroup executives, including Robert Rubin,and a former Treasury secretary; Chief Financial Officer Gary Crittenden; the bank’s senior risk officer; and its chief auditor. Bowen put the words “URGENT -- READ IMMEDIATELY -- FINANCIAL ISSUES”“The reason for this urgent e-mail concerns breakdowns of internal controls and resulting significant but possibly unrecognized financial losses existing within our organization,” Bowen wrote.“We continue to be significantly out of compliance.” There were no noticeable changes in the mortgage machinery as a result of Bowen’s warning, After Bowen went public with her findings,She went from supervising 65 people to managing none.“What I saw there was 10 times worse,”“Every time I turned over a rock, I found a snake.” One place where she uncovered flaws was in the fraud prevention and investigation group. That’s where Hunt’s team shipped questionable loans, with issues such as obviously forged signatures, whited-out income lines on tax forms or misspelled bank names on borrower bank statements.She came across a list of about 1,000 loans that the quality-control team had identified for possible fraud.
The fraud prevention and investigation group had left some of the mortgages in the queue for more than two years without checking them,Not one notification went to the FHA. Different teams began feuding, internal e-mails made public in the Justice Department case show. Ross Leckie, a senior director of CitiMortgage, sent an e-mail ordering his staff to meet its goal of a maximum 5 percent defect rate on home loans. Quality-control employees had identified 10 loans with severe flaws from a pool of 138, Leckie said, for a rate of 7.25 percent.“Drive this rate down by brute force,”“We need three loans to be removed to get to 5.07 percent.”CitiMortgage defect rates did plummet,It wasn’t because there were fewer bad mortgages.“It’s because they were beating us up over the quality- control reports,” Hunt needed the strength on March 22, 2011. That’s the day Polkinghorne, who was three levels above her in the chain of command, called her and a colleague aside and told them their asses were on the line if the defect rates didn’t fall.

Warsaw, NC

#3 Sep 20, 2012
On March 29, 2011, Hunt walked into CitiMortgage’s human resources department in O’Fallon and told them everything: how the bank had been routinely buying and selling bad mortgages for years, how the fraud unit wasn’t doing its job and how the quality-control people were being pressured to change their ratings.
There was no testimony and no trial. Citigroup admitted wrongdoing on Feb. 15 and paid the $158.3 million to settle.

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