CitiMortgage has agreed to pay the Federal Housing Administration $158 million for submitting bad loans to the mortgage insurance agency for endorsement.
The U.S. Attorney for the Southern District of New York filed a civil fraud suit against the St. Louis-based mortgage subsidiary of Citigroup for alleged violations of FHA's underwriting and quality control requirements.
Federal investigators found CitiMortgage used "brute force" to pressure quality control personnel to approve defective loans.
"CitiMortgage did not review approximately 1,000 cases of potential fraudulent loans referred by its quality control unit" and did not report the activity to HUD, according to U.S. Attorney Preet Bharara.
"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," the U.S. attorney said.
The FHA settlement was actually reached last week during negotiations over the foreclosure and servicing settlement, according to a CitiMortgage spokesman.
"We are pleased to resolve this matter in conjunction with the National Mortgage Settlement reached last week among the five largest mortgage servicers and the Department of Justice and state Attorneys General," spokesman Mark Rodgers said.
He noted that CitiMortgage will continue to be a participant in FHA's Direct Endorsement Lender Program. "We take our quality assurance processes seriously and have proactively undertaken process improvements to ensure that they are as robust as possible," Rogers said.
Since 2004, CitiMortgage originated nearly 30,000 FHA-insured loans – but roughly 30% of the borrowers defaulted.
