CitiMortgage Settles "Brute Force" Suit for $153.8 Million

A lawsuit filed against CITIMORTGAGE,
INC, a subsidiary of CITIBANK, N.A. was filed in the U.S. District Court for Manhattan
on Wednesday and simultaneously settled for $158.3 million.  The suit, brought by the U.S. Attorney that
District on behalf of the Department of Housing and Urban Development (HUD),
charged the company, a participant in the Direct
Endorsement Lender program administered by the FHA, had engaged in
risky lending which had caused HUD, FHA’s parent, to incur losses on certain
loans that the bank should never have originated. 

In the settlement CITIMORTGAGE “admits,
acknowledges, and accepts responsibility” for certain conduct alleged in the
Complaint including failing to comply with all HUD-FHA requirements with
respect to certain loans and submitting certifications to the agency that these
loans were eligible for FHA mortgage insurance “when in fact they were not.”

One example from the Complaint alleges
that the defendant’s business units routinely interfered with and exerted
pressure on its quality control personnel
to improperly reduce the quantity and
severity of defects it reported.  Among
other things, the business units were instructed to apply “brute force” to
pressure quality control personal to reduce or downgrade their findings of
defects and to challenge all adverse findings by QC in an effort to drive down
defect rates.  This failure to maintain a
compliant QC program allowed widespread underwriting deficiencies to continue
unabated.

The Complaint alleges that, since
2004 more than 30 percent of loans originated or underwritten by CITIMORTGAGES
have gone into default, soaring to more than 47 percent for loans originated in
2006 and 2007.  This resulted in HUD
having to pay millions of dollars in FHA insurance claims.

Manhattan U.S. Attorney Preet
Bharara stated:  “For far too long, lenders treated HUD’s insurance of
their mortgages like they were playing with house money.  In fact, they
were playing with other people’s money and other people’s homes. 
CITIMORTGAGE is the latest in a series of cases this office has filed against
lenders who flouted HUD requirements for making government-backed
loans.   We are pleased that, with today’s settlement, CITIMORTGAGE
has accepted responsibility for its conduct and agreed to pay damages in an
amount that will significantly compensate HUD in this case for losses to the
FHA insurance fund.” 

In filing its Complaint, the
Government joined a private whistleblower lawsuit that had been filed against
CITIMORTGAGE under the False Claims Act in August of last year.  The
$158.3 million CITIMORTGAGE has agree to pay to settle this suit is in addition
to the amounts its parent company has agreed to make in connection with the $25
billion mortgage servicing settlement announced earlier this month

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

…(read more)

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