Four years after rotten mortgages helped trigger a global financial crisis, Sherry Hunt says, her Citigroup Inc. quality-control team in O'Fallon, Mo., was still finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers.
Instead of reporting the defects to the Federal Housing Administration, the bank saddled the agency with losses by falsely declaring the loans fit for its federal insurance program, according to a complaint filed last week by the U.S. Attorney's Office in Manhattan. Citigroup agreed to pay $158.3 million to settle the claims and admitted that it certified loans for FHA backing that didn't qualify.
Hunt, who filed a sealed lawsuit against New York-based Citigroup in August that the government joined, will collect $31 million of that sum — before taxes and attorney's fees — as a whistle-blower, she said in an interview. The settlement, which encompassed misconduct spanning 2004 to the present, indicates Citigroup has lingering problems in its O'Fallon CitiMortgage unit.
"Citigroup in particular received government funding, taxpayer dollars, because of its risky operations," said Peter Henning, a law professor at Wayne State University in Detroit. "It shows that they hadn't really learned much of a lesson from the financial crisis."
The inspector general for the U.S. Department of Housing and Urban Development faulted Citigroup's quality-control program during a 2008 audit, according to the complaint.
Taxpayers rescued the bank with a $45 billion bailout that same year and guaranteed more than $300 billion of its risky assets after the lender's stability was threatened by mounting costs on soured loans. The bank lost a total of $29.3 billion in 2008 and 2009.
Hunt's co-workers, instead of checking for fraud or making reports about underwriting defects to the FHA as required, argued with her over the soundness of the loans, she said.
Employees who acted as "gatekeepers" applied "what they describe as 'brute force' to pressure Citi's quality-control managers" into playing down defects, according to the government's complaint.
Some colleagues had pay incentives tied to reducing the number of reported problems, and they spent hours trying to get her to relax her warnings, including those about the most basic deficiencies, said Hunt, who lives in Silex.
Last year, she said, she became convinced that she was being asked to look the other way on serious flaws.
That's when she decided to blow the whistle.
"All a dishonest person had to do was change the reports to make things look better than they were," Hunt said in an interview. "I wouldn't play along."
Citigroup has approved about 30,000 loans with a value of $4.8 billion for FHA insurance since 2004; more than 30 percent of those borrowers have quit paying, the Justice Department said in its complaint. Almost half of the bank's FHA loans originated in 2006 and 2007 have defaulted, the government said, with HUD paying out almost $200 million in insurance claims on mortgages Citigroup originated or underwrote since 2004.
