Citi Pays $158.3 Million Due to Faulty FHA Insurance Claims

CitiMortgage, a subsidiary of CitiBank, agreed to pay $158.3 million due to claims that the bank failed to comply with HUD-FHA requirements with certain loans regarding FHA mortgage insurance eligibility.

As a result of this, HUD incurred losses from defaulted loans that should not have been approved. The federal government joined cases with a private whistleblower, who filed against CitiMortgage under the False Claims Act in August of last year.
“For far too long, lenders treated HUD’s insurance of their mortgages like they were playing with house money,” said Manhattan U.S. attorney Preet Bharara. “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.”
As part of the settlement, CitiMortgage accepted responsibility for specific actions including failing to conduct
a full review of certain loans it endorsed for FHA insurance and not meeting underwriting requirements set forth by HUD.
“It is critically important that FHA approved lenders meet our requirements for origination and underwriting of FHA loans,” said HUD general counsel Helen Kanovsky. “Lenders with authority to directly endorse FHA-insured mortgages must be serious about applying our underwriting guidelines and implement a quality control program that ensures compliance. This is a federal program and lenders who violate these requirements face potential False Claims Act liability.”
Through the Direct Endorsement Lender program (DEL), CitiMortgage has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL lender such as Citi approves a mortgage loan for FHA insurance and the loan later defaults, the lender can submit an insurance claim to be paid for by HUD. The program has specific guidelines for underwriting and also requires the lender to maintain a quality control program, among other rules, which the lawsuit states CitiMortgage did not follow.
“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,” said Mark Rodgers, a spokesman for New York-based Citigroup, said in an e-mailed statement to Bloomberg.
Federal officials sued three more banks in the past year over FHA insurance claims including Deutsche Bank AG and Mortageit Inc. in May, and Allied Home Mortgage Corporation in November.