Citigroup Inc. agreed to pay $158 million to settle a whistle-blower’s claims that a unit of the third-biggest U.S. lender deliberately reduced oversight of its loan origination process, causing a surge in borrower defaults.
Manhattan U.S. Attorney Preet Bharara today said the federal government had joined and resolved a civil lawsuit alleging that the unit, CitiMortgage, violated the requirements of a Federal Housing Administration program that allowed the lenders to decide for which of their home loans they would be federally insured against loss.
CitiMortgage admitted to falsely stating that some loans met FHA and U.S. Housing and Urban Development agency standards for mortgage eligibility, the prosecutor said.
“For far too long, lenders treated HUD’s insurance of their mortgages like they were playing with house money,” Bharara said in the statement. “In fact, they were playing with other people’s money and other people’s homes.”
U.S. District Judge Victor Marrero in New York approved the accord today, and CitiMortgage must pay the agreed-on amount within 30 days, the prosecutor said. The case was filed under seal in August by Sherry Hunt, a Missouri resident and CitiMortgage employee. Marrero ordered it unsealed today.
The settlement is independent of the $25 billion, 49-state settlement with the biggest U.S. mortgage lenders announced by the states’ attorneys general on Feb. 9. Citigroup is contributing $2.2 billion toward that accord, which followed a nationwide probe into disclosures that banks were using flawed documents in seizing homes.
Regulators alleged that Citigroup appointed internal “gatekeepers” to pressure quality control employees to downgrade their reports on defective loans, according to the complaint. Internal reviews of bad loans remain a “battleground” in the CitiMortgage unit, while the bank’s own head of quality control described the conduct of “business personnel” as “nothing short of abuse and bordering on fraudulent,” regulators claimed.
“As a result, Citi’s quality control program lacks the basic independence from business unit control that is required by HUD,” according to the complaint.
Since 2004, the lender had endorsed about 30,000 loans for FHA insurance.
“It repeatedly submitted certifications that were knowingly or recklessly false,” Bharara said.
The CitiMortgage unit is run by Sanjiv Das, who was hired by Chief Executive Officer Vikram Pandit in July 2008. Both Das and Pandit are former Morgan Stanley executives.
“We are pleased to resolve this matter in conjunction with the National Mortgage Settlement reached last week among the five largest mortgage servicers and the Department of Justice and state attorneys general,” Mark Rodgers, a spokesman for New York-based Citigroup, said in an e-mailed statement.
“As with the larger mortgage agreement, we have fully provided for this settlement as of the fourth quarter of 2011.”
Das declined to comment.
Citigroup said Feb. 9 that it will record a $125 million after-tax charge to fourth-quarter results “in connection with the resolution of related mortgage litigation,” according to a statement.
The case is U.S. ex rel. Hunt v. Citigroup Inc., 11-cv-5473, U.S. District Court, Southern District of New York (Manhattan).