Even as the massive $26 billion settlement negotiations surrounding Citigroup and four of the other largest banks in the country are wrapping up, the banking giant has found themselves in more trouble with the federal government. It seems that in addition to robo-signing foreclosure papers and wrongfully taking the homes of consumers who were current on their mortgages, the company's mortgage processors were also defrauding the federal government.
READ May 2012 UPDATE Below: Sherry Hunt drew inspiration from a country song by Rascal Flatts called "Stand." "Decide you've had enough," it goes. "You get mad. You get strong. Wipe your hands, shake it off, then you stand." She walked the walk --took her stand --and then took her employer to court -- and won $31 million.
Sherry Hunt, a Citigroup quality-assurance vice president, filed a sealed lawsuit under the False Claims Act in federal court in Manhattan in August. Hunt came forward to stop the bank from what she claims was defrauding and falsifing information that misled federal government entities from 2004 forward. Citing an "overall systemic failure" in her complaint, she provides additional details into the bank's broken mortgage-processing system.
It was announced last week that the Citigroup mortgage unit was guilty of defrauding the Federal Housing Administration by claiming that some properties were eligible for FHA insurance when they actually weren't.
At least 1000 mortgages were fraudulently insured in this manner, all of which showed signs of mortgage fraud or other problems that would normally disqualify the loan from eligibility. The government provided backing for the mortgages and ended up losing millions when the borrowers defaulted. Given that the FHA has paid out over $200 million as a result of defaults on Citigroup's mortgages since 2004, the fraudulent insurance filings could have potentially continued to earn the bank millions of dollars had Hunt not come forward.
As a result of the action taken against Citigroup by Hunt and the FHA, the bank will have to pay $158 million as part of a settlement with the government. Hunt's share of the settlement; will be $31 million before taxes and attorney's fees. While this is pocket change to a bank like Citigroup, the company also has to ADMIT their responsibility for the fraud because it failed to comply with government regulations. Though the latter part may seem minor, stop and think for a moment when any of the big banks took responsibility for any of their actions while they were stealing from consumers and conspiring to kick families out of their homes. I feel no pity for Citigroup, especially since this settlement is just a drop in the bucket compared to the bank's annual revenues.
The Justice Department reserved the right to pursue criminal and other charges related to mortgages originated or underwritten by Citigroup and not insured by the FHA. With any luck this is just the start of fraudsters having to reap what they've sewn.
Last I knew, knowingly signing documents fraudulently, and working to cover up the fraud is criminal, isn't it? Or is it only criminal if you are a homeowner and not a bank? Seems we've gone to great lengths to create and then accept a double standard here. Perhaps fraud and financial crimes--yes, that's what they are, crimes--continue to happen because we never addressed the real problems to begin with. You can't fix a problem you don't acknowledge.
You can read consumer stories and find more blogs on foreclosure and mortgage servicing issues here: Mortgage Servicing and Lawsuits
UPDATE: May 31, 2012
Woman Who Couldn't Be Intimidated by Citigroup Wins $31 Million
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