Click Fraud Protection CitiMortgage, Inc. Pays $158.3 Million to Settle Mortgage Fraud Allegations
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CitiMortgage, Inc. to Pay $158.3 Million to Settle Mortgage Fraud Allegations

On February 15, 2012, the United States Attorney’s Office for the Southern District of New York announced yet another case they brought against lenders for mortgage fraud. CitiMortgage Inc., a subsidiary of CitiBank, has admitted to and accepted responsibility for committing fraud against the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). The bank has agreed to pay $158.3 million to settle claims brought under the False Claims Act and Financial Institutions Reform, Recovery, and Enforcement Act. This settlement announcement follows other recently announced and similar cases against banks and lenders for their irresponsible lending practices.

CitiMortgage was one of the many participants the FHA’s Direct Endorsement Lender Program. Under this program, participating lenders have the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a lender, such as CitiMortgage, approved a mortgage loan for FHA insurance and the loan later defaulted, the lender would be able to submit an insurance claim to HUD and get paid. Under this program, the government agencies do not review loans before they are approved for FHA insurance, so participating lenders need to comply with very specific rules in order to ensure that they are complying with the program.

According to the complaint, CitiMortgage failed to meet all of the HUD/FHA requirements for some loans, failed to fully review loans that it endorsed for FHA insurance under the Direct Endorsement Lender Program, endorsed FHA insured loans that were ineligible under the program, and submitted false certifications to the government about these ineligible loans. As a result of this irresponsible and fraudulent behavior, HUD was required to pay millions of dollars to CitiMortgage when the insured loans defaulted.

Here are some numbers that reflect the severity and irresponsibility of CitiMortgage’s actions:

  • CitiMortgage has endorsed nearly 30,000 mortgages for FHA insurance, many of which did not meet the requirements for federally insured mortgage loans.
  • Since 2004, over 30% of loans originated or underwritten by CitiMortgage have gone into default.
  • CitiMortgage’s default rate rose to more than 47% for loans originated in 2006 and 2007.

This settlement goes a long way to righting some of the wrongs that CitiMortgage committed against the Government, and the American taxpayers. We are confident that recoveries such as this one will help to change the lending process that currently exists in this country. Lenders are now acutely aware of the fact that their fraudulent behavior will not go unnoticed and that they will be punished for it.

CitiMortgage’s fraud was reported to the government by a whistleblower who filed a complaint against them under the qui tam provisions of the False Claims Act. If you are aware of fraud being committed, you can take action and help stop it. Contact the qui tam attorneys at Tycko & Zavareei, LLP today to learn about what you can do.

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