CitiMortgage Settles "Brute Force" Suit for $153.8 Million

by devteam February 17th, 2012 | Share

A lawsuit filed against CITIMORTGAGE,rnINC, a subsidiary of CITIBANK, N.A. was filed in the U.S. District Court for Manhattanrnon Wednesday and simultaneously settled for $158.3 million.  The suit, brought by the U.S. Attorney thatrnDistrict on behalf of the Department of Housing and Urban Development (HUD),rncharged the company, a participant in the DirectrnEndorsement Lender program administered by the FHA, had engaged inrnrisky lending which had caused HUD, FHA’s parent, to incur losses on certainrnloans that the bank should never have originated.  </p

In the settlement CITIMORTGAGE “admits,rnacknowledges, and accepts responsibility” for certain conduct alleged in thernComplaint including failing to comply with all HUD-FHA requirements withrnrespect to certain loans and submitting certifications to the agency that thesernloans were eligible for FHA mortgage insurance “when in fact they were not.”</p

One example from the Complaint alleges</bthat the defendant's business units routinely interfered with and exertedrnpressure on its quality control personnel to improperly reduce the quantity andrnseverity of defects it reported.  Amongrnother things, the business units were instructed to apply “brute force” tornpressure quality control personal to reduce or downgrade their findings ofrndefects and to challenge all adverse findings by QC in an effort to drive downrndefect rates.  This failure to maintain arncompliant QC program allowed widespread underwriting deficiencies to continuernunabated. </p

The Complaint alleges that, sincern2004 more than 30 percent of loans originated or underwritten by CITIMORTGAGESrnhave gone into default, soaring to more than 47 percent for loans originated inrn2006 and 2007.  This resulted in HUDrnhaving to pay millions of dollars in FHA insurance claims.</p

Manhattan U.S. Attorney PreetrnBharara stated:  “For far too long, lenders treated HUD’s insurance ofrntheir mortgages like they were playing with house money.  In fact, theyrnwere playing with other people’s money and other people’s homes. rnCITIMORTGAGE is the latest in a series of cases this office has filed againstrnlenders who flouted HUD requirements for making government-backedrnloans.   We are pleased that, with today’s settlement, CITIMORTGAGErnhas accepted responsibility for its conduct and agreed to pay damages in anrnamount that will significantly compensate HUD in this case for losses to thernFHA insurance fund.”  </p

In filing its Complaint, thernGovernment joined a private whistleblower lawsuit that had been filed againstrnCITIMORTGAGE under the False Claims Act in August of last year.  Thern$158.3 million CITIMORTGAGE has agree to pay to settle this suit is in additionrnto the amounts its parent company has agreed to make in connection with the $25rnbillion mortgage servicing settlement announced earlier this month</p

The settlement was approved by U.S.rnDistrict Court Judge Victor Marrero.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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