Date published: April 1, 2012
The federal government announced on Feb. 15 that it had settled a civil fraud lawsuit against CitiMortgage Inc., under which the lender will pay the U.S. government $158.3 million within 30 days of the settlement.
The government's complaint seeks damages and civil penalties under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) for more than six years of misconduct in connection with CitMortgage's participation in the Federal Housing Administration's (FHA's) Direct Endorsement program, according to a press release.
CitiMortgage agreed to pay $158.3 million in damages under the False Claims Act. The complaint was filed and settled on the same day in Manhattan federal court. "By 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 release stated.
Under the terms of the settlement, CitiMortgage "admits, acknowledges and accepts responsibility" for the conduct alleged in the government's complaint, including failure to comply with all FHA requirements with respect to certain loans, and submitting to FHA certifications that loans were eligible for FHA insurance when they were not, the press release stated. Further, the lender admitted that as a result of its conduct, the Department of Housing and Urban Development (HUD) incurred losses when certain loans that should never have been endorsed defaulted.
The settlement was approved on Feb. 15 by United States District Judge Victor Marrero.
A HUD press release quoted from the government's complaint, stating, "CitiMortgage also failed to disclose to HUD loans containing fraud or other serious violations of HUD requirements and did not report a single fraudulent loan that it underwrote until July 201 1, shortly after having received a subpoena from the U.S. Attorney's Office. CitiMortgage did not review approximately 1,000 cases of potential fraud referred by its qualitycontrol unit."
The complaint went on to allege, "Since 2004, CitiMortgage has endorsed nearly 30,000 mortgages for FHA insurance. Although CitiMortgage certified that each of these loans was eligible for FHA insurance, it repeatedly submitted certifications that were knowingly or recklessly false."
The government's complaint alleged the lender "failed to perform basic due diligence, failed to verify information in the loan file that bore directly on the borrower's ability to make payments . . . and repeatedly endorsed mortgage loans that contained serious defects and departures from HDD's underwriting standards, and thus were not eligible for FHA insurance."
The resulting defaulted FHA loans originated by CitiMortgage have caused HUD to pay millions of dollars in insurance claims, the government's release stated. The release noted that since 2004, more than 30 percent of loans originated or underwritten by CitiMortgage have gone into default. The lender's default rate "soared to more than 47 percent for loan originated in 2006 and 2007, resulting in foreclosures, evictions and ultimately depressed real estate values, all to the detriment of the national housing market and the national economy," according to the release.
Commenting on the settlement, 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."