Thursday, October 20, 2011

HUD and CitiMortgage in Dispute Over Short Sales

According to a recent report by HUD’s Office of Inspector General (OIG), CitiMortgage, Inc., based in Missouri, has violated the Federal Housing Administration’s (FHA) Preforeclosure Sale Program by submitting improper claims. After reviewing 68 FHA claims, the inspector general found 63 claims for loans Citi had not properly reviewed, according to the OIG’s report. Citi “respectfully disagrees” in its written response. FHA’s Preforeclosure Sale Program is essentially a short sale program for distressed FHA borrowers. “Citi did not properly determine that borrowers were eligible to participate in the program,” the OIG stated in its report. According to the OIG, Citi did not verify that borrowers were in default or in imminent danger of default as a direct result of unavoidable financial stress, and the bank did not determine that the homeowners would not be able to keep current on their mortgages. “We recommend that the U.S. Department of Housing and Urban Development (HUD) require Citi to reimburse HUD for the 63 improper claims totaling nearly $5 million,” states the inspector general’s report. Citi maintains it reviewed each borrower’s financial status using “prudent underwriting practices that are standard in the industry” in each case and concedes that “only seven of the exceptions cited have merit.” In addition, the bank believes the OIG’s recommendations would slow down the preforeclosure program’s processing to such a rate that it could prevent borrowers from qualifying for short sales and send them into foreclosure. “As noted in the report, Citi disagrees with its findings, and we are confident that all appropriate guidelines and procedures were followed accordingly,” a Citi spokesperson told

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