Citigroup ‘Defrauded’ Fannie, Freddie: Whistle-Blower

Citigroup Inc. (C), which last week admitted breaking Federal Housing Administration rules and paid a fine, also violated regulations for home loans sold to Fannie Mae (FNM) and Freddie Mac (FRE), according to a whistle-blower’s complaint.

The bank “defrauded, falsified information or misled federal government entities” by selling or securing insurance for mortgages with defects such as improper appraisals and paperwork errors and not reporting them as required, Sherry Hunt, a Citigroup quality-assurance vice president, said in her complaint, which was unsealed yesterday. It was filed under the False Claims Act in federal court in Manhattan in August.

For Citigroup, the third-largest U.S. bank by assets, the high defect rates could be costly. It might be forced to buy back substandard mortgages sold to government-controlled Fannie Mae and Freddie Mac, who buy or guarantee most U.S. mortgages.

Under the Feb. 15 settlement with the U.S. on FHA loans, Citigroup will pay $158.3 million. TheJustice Department reserved the right to pursue criminal and other charges related to mortgages originated or underwritten by Citigroup and not insured by the FHA.

“Everyone is a little bit guilty for not keeping an eye on the processes and doing what we should have been doing,” Hunt said in a phone interview from her home in Silex, Missouri. “Managers have to take ownership of their area, know what’s going on and make sure they’re doing the right thing.”

‘Quality Assurance Processes’

Last year, Citigroup repurchased 6,600 loans from government buyers, an 89 percent increase from 2010, according to a presentation on its website. The bank set aside $1.2 billion to buy back defective mortgages as of the end of 2011 -- the most ever, and up from $969 million in 2010.

“We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as strong as possible,” Sean Kevelighan, a Citigroup spokesman, said in an e-mailed statement.

Andrew Wilson, a spokesman for Washington-based Fannie Mae, and Chad Wandler, a spokesman for McLean, Virginia-based Freddie Mac, declined to comment.

Hunt said New York-based Citigroup knowingly vouched for the quality of loans that were “deficient” in income documentation, had incomplete borrower job histories, appraisal problems, errors in closing paperwork, missing credit reports and miscalculated maximum mortgage amounts, among other flaws. The failures continued into last year, Hunt said.

List of Loans

http://www.bloomberg.com/news/2012-02-22/citigroup-defrauded-fannie-freddie-whistle-blower-claims.html

With Trillions On the Table Nobody Plays Fair, and Everyone Plays for Keeps by Janet Tavakoli

The Fed has been engaging in closed door meetings to change rules for banks. It wasn't until Victoria McGrane and Jon Hilsenrath at the Wall Street Journal asked for the results of votes that the Fed posted them on its web site. Since June 2010, the Fed has held only two public meetings on the changes. But just on the topic of derivatives alone it held 14 meetings with JPMorgan Chase, 12 meetings with Deutsche Bank and Goldman Sachs, and 11 meetings with Bank of America, Barclays, Morgan Stanley and Wells Fargo.

How effective will the Fed's regulations be after it has taken so much input from banks that vigorously lobbied against the already impaired Dodd-Frank Act?

Without knowing more about the meetings, no one can say for sure, but based on the events since the September 2008 on-going financial crisis, I can take an educated guess. The banks will largely have their way in diffusing effective regulation. After all, they've been remarkably adept at preventing the enforcement of perfectly good laws and regulations already in place before during and after the bailouts.

Not only have the banks been defiant, but so have luminaries in the financial community -- at least until they were called out on it.

In January 2009, Warren Buffett, CEO of Berkshire Hathaway, told Tom Brokaw: "the idea that people that move money around are some favored class... strikes me as getting pretty far away from where we should be." Two years later he issued a PR release excusing apparent insider trading by one of his successor candidates, David Sokol. Within a few months, he changed his position in the face of shareholder and media pressure and called the evidence very damning.

http://www.huffingtonpost.com/janet-tavakoli/with-trillions-on-the-tab_b_1290806.html