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CitiMortgage, Further Evidence of Wall Street Racket

Posted by Larry Doyle on February 17, 2012 11:35 AM |

The story of rampant abuse within CitiMortgage is garnering enormous attention throughout the blogosphere today.

Do you find it ironic that an institution such as Citi, which was saved by Uncle Sam in 2008, would be abusing the old man a full three years later? No surprise here.

In a financial system in which regulators are ill equipped and overwhelmed by industry practices, rampant abuse and fraud seems to have become endemic. I tip my hat to Sherry Hunt, a whistleblower within CitiMortgage, for exposing the fraud within the mortgage underwriting business at Citi for which taxpayers foot the bill. Ms. Hunt gains immediate induction into the Sense on Cents Hall of Fame in the process.  

I welcome linking to ProPublica, which provides an internal review to the documents and complaint which expose Citi’s fraudulent business practice. ProPublica writes How Citibank Dumped Fraudulent Lousy Mortgages on the Government:

The whistle-blower who originally brought the case, Sherry Hunt, an employee of Citi’s mortgage department, said the company actively undermined the process that was supposed to check for fraud in order to push through reckless loans and get higher profits.

The suit itself makes for good reading. We’ve pulled out the juiciest bits, and explain just what Citi appears to have been doing.

I strongly recommend a review of the ProPublica article for those who want to gain a greater insight into an abusive business practice that is reflective of an industry deeply engaged in an incestuous regulatory relationship. As ProPublica concludes:

Citi isn’t the only bank facing these kinds of allegations — as part of last week’s mortgage settlementBank of America will pay the FHA up to $1 billion for fraud and abusive foreclosure practices.

So with $158 million for Citi and a cool $1 billion for Bank of America, do you begin to get a fuller appreciation that the industry as a whole was likely engaged in widespread fraudulent business practices not only up to the bank bailout in 2008 but then beyond that as well? Do you have any real confidence that these practices are not going on even today? Without the courage of Ms. Hunt, would we have learned of these abuses within CitiMortgage?

In light of these developments, I am once again compelled to ask as I did in spring 2011, Did Wall Street Violate the Racketeering Act?:

A month ago I questioned whether there was sufficient evidence of abusive and fraudulent practices in the mortgage business on Wall Street (underwriting, servicing, securitizations, etc) to make a case that the industry as a whole violated the Racketeering Act? I would not expect that our ‘leaders’ in Washington would ever think about making that case; that said, I think there is plenty of reason to believe that a very real case could be made.

What will we likely see? Perhaps a number of individual cases.

And so we have witnessed individual cases, but what about a scathing and industrywide review? Where is a modern day Ferdinand Pecora when we really need him, and why do I think that old Ferdinand continues to roll over in his grave?

With little in the way of real leadership in Washington and on Wall Street, fines get levied, taxpayers really foot the bill, the pursuit of illicit gains overwhelming principle continues, and America’s moral fiber erodes.

What happened to our country?

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

  • Peter S.

    God Bless Sherry Hunt!

  • Gary

    Seems as long as civil penalties are the only punishment these crimes against capitalism will continue. The corp will pass the pain on to either the customer through higher fees or the stockholders, in either case the miscreants suffer no pain.

    Until either jail sentences AND/or disgorgement of ill gotten gains occurs we will continue to suffer the expansion of crony capitalism.

    Here we are going on 4 years of witnessing and suffering through the charades of justice.

    Keep up the pressure and great work exposing the truth, maybe (hopefully) some day there will be a “revolution” from the masses to insist on change.

  • LD


    You nailed it.

    Think that if there were meaningful management changes at Citi back in 2008 that perhaps these fraudulent practices may have had a chance of being exposed and eliminated a few years ago instead of needing a whistleblower now.

    Civil fines are viewed as nothing more than a cost of doing business.

  • Gary

    All of the money captured by the SEC, CFTC, Dept of Justice should go into a Gov’t Whistle Blower fund, to compensate gov’t workers, congressional staffers, other insiders who can turn the “cleansing sunlight” on the corrupt bureaucrates and congressional seat warmers to throw out the plutocrats.

    I for one would vote to put in $1B from the nearly $4T budget towards such a fund. (probably would be way underfunded given the crop of crap we have in washington).

  • ron carpenter

    Thanks for what you are doing. I have degrees in business and law, but never really understood the banking system. I had no idea how “private” the Federal Reserve system really is. As an investor, I did see some of what you tell about Wall Street (around 1980), and have not used a broker since.
    Today, I only invest directly through DRIP accounts. We have also been buying farm land in my wife’s home country when we can afford it. Keep up the good work! rtc

  • coe

    Given all of the scrutiny surrounding the mortgage crisis, LD, a reasonable person might presume that the originators would take particular care to clean up their acts. How is it possible that this type of thing happened – right in the face of the government scrutiny of the very largest of institutions – and what does it say about the grasp of executive management as well as the efficacy of the regulators – simply, that they were both asleep at the switch…until, at a minimum, a Vikram Pandit and the head of CitiMortgage get fired, face civil penalties, even jail time, I’m pretty sure these abuses will continue…we’ve said it time and time again – incentives drive behavior…when the checks and balances intended to reside in a Quality Control department are suborned by leaders rewarding those that flaunt good practices and are rewarded handsomely for this poor behavior – well – shouldn’t there be a house cleaning and some blood letting – where is the outrage? Are we that numbed by the onslaught of scandal after scandal, that we just let the bank pay this paltry fine and turn the page…the more you learn about the corruption and amorality and greed played out in so many ways by the banking system, the more it feels like a criminal enterprise to me

  • Gary W


    regulators and congress were not sleeping at the switch–they were wide awake so as not to miss collecting their fee as the trains passed the switch!

  • old.frt

    And how did a person with two degrees in business and law miss this?

    Pretty obvious: he learned what he was taught.

    Unfortunately those who were teaching him were not much better at making sense of the system.
    Indeed, as the aphorism has it, “those who know, do–those who don’t, teach.”

    Give up the presumption that those in the higher banking and brokerage corporate suites are ethical.
    They aren’t.
    They are there for the money as well.
    Ain’t this the American Way?
    And they knew what they were doing: taking advantage of the System to make huge amounts of money while they could.
    Give up the notion that they will learn from just being caught up doing wrong.
    Other writers have commented that their punishment must be materially significant and socially painful.
    Failure can only lead to repetition until they hear the sound of metal doors slamming shut,

    It would be nice to see those fellows in a handcuffed perp walk to the black SUV with tinted windows.

    The object lesson would be a youtube smash hit.

    I leave it up to others to point out who else deserves this treatment.

  • All the banks are recidivist. We have layers and layers of Gresham’s Dynamics at work in these institutions and in our crony-based political economy.

  • Newt Brosius

    Hello Larry: Great piece on Citibank. Regulation or not? The determination that credit default swaps were not insurance and therefore not subject to regulation ultimately not only caused the downfall of a great insurance company, AIG, but caused the taxpayers a bundle to keep AIG alive to prevent major havoc on the world financial markets. Along this same line there was a very interesting discussion this morning on MSNBC’s Up with Chris Hayes about the Occupy the SEC movement and their 320 page letter to the SEC, FDIC, the Federal Reserve and the OCC, to comment on the notice of proposed rulemaking for the Volcker Rule. The repeal of Glass-Steagall was a mistake; will the new Volker rule included in Dodd Frank be enough? Love to hear you thoughts.

  • LD


    Great to hear from you, and thanks very much for writing.

    I have written extensively on these topics. The major premise of a lot of my writing is less on whether we have enough regulation, but much more on whether the regulations that we do have are properly crafted and then properly administered.

    A few past commentaries especially come to mind and I welcome referencing them here:

    The Big HOLE in Financial Regulation (March 22, 2010)


    Future Financial Regulation: Not a Question of Sufficiency, But of Transparency and Integrity (May 18, 2009)

    Despite the fact that I wrote those commentaries two to three years ago, still here we are today debating the merits of financial regulation. Dodd-Frank is a shell of what regulation should really be on Wall Street, and the lobbyists are working overtime to water down the substance of the Volcker Rule.

    Why and how does this happen? The pols are paid by the banks. I have a commentary on that topic embedded in the previous links.

    Greed on all fronts overwhelmed regulators, pols, investors, and consumers alike. We lost our way and innocent parties now pay for the sins of so many.

    In short, our government failed us and in many respects continues to fail us.

    Glad you found my site. My best to all.

  • fred


    Sadly, the examples presented in your blog paint a picture of systematic abuse, however, the crime was committed against the American taxpayer not a ‘willing’ mortgagee. Regulators should persue the maximum penalties allowable. Monetary proceeds should be used to pay down the federal debt.

    Let’s not leave the gov’t administrators beyond reproach. Since when does prudence rely on unverified certifications from program participants for accuracy?

    As part of a ‘workable’ securitization process, how about a putback provision allowing the gov’t to putback a certain % of randomly selected mortgages to the originators to be maintained on the originators books until the mortgage has been fully paid.

    But tell me LD, how does effective regulatory enforcement work within the context of a financial system supported by a gov’t determined to protect creditor interests at all costs?

    Who will ultimately pay the price for every below market interest rate mortgage now being underwritten or rewritten as part of any gov’t settlement? As always, the biggest sucker of them all, the American taxpayer!

  • JR

    The enforcement record of federal and state financial regulators has been so poor for so long that we should examine the nature of the impediments to effective enforcement. It is curious to me that Sarbanes-Oxley has contributed to better financial reporting but has not seemed to make any positive contribution to deterring criminal activity by financial organizations.
    We simply need better enforcement tools, and an apparatus for enforcement to work, that are specific to the business nuances of the financial industry. In the same way that management consultants calibrate performance, we need to define, measure and calibrate criminal activity in the specific context of financial firms.

  • deborah sue

    i would like to talk to you sherry about my mortgage. everything has been approved by the underwriter.
    since i got this stupid cola, citimortgage tells me it has to go back to the underwriter.
    i will be dead by then.

  • Sue : recommended

    Citimortgage foreclosed on us 7-27-11. We tried to refinance so Citi told us they would put us on forebearance at $1000.00 a month and see how that went from 2-09 to 11-09.

    In Dec. 2009 payment back up, never signed anything and found out later they never applied any of monies to our acct and found out later they were charging interest upon

    In March 2011 Citi told my husband to stop making payments they were foreclosing. We did everything we could. We were not only scammed by Citimortgage but by two other companies.

    We have been out of our house for 7 weeks and Citi told us they were reopening our file for review and during that time they sold it. I have so much more to say.

    We have been sleeping in a truck with our handicapped daughter and her health is not good. I am not done with Citimortgage yet. We want our house back. If any one wants to email me I think we should go to Washington DC and talk to someone to get help.

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