Federal Government Settles Fraud Lawsuit Against CITIMORTGAGE, INC. for Reckless Mortgage Lending Practices

Preet Bharara, the United States Attorney for the Southern District of New York, Helen Kanovsky, General Counsel of the U.S. Department of Housing and Urban Development (“HUD”), and David A. Montoya, the Inspector General of HUD, announced today that the United States has filed, and simultaneously settled, a civil fraud lawsuit against CITIMORTGAGE, INC. (“CITIMORTGAGE”), a subsidiary of CITIBANK, N.A. The Government’s Complaint seeks damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) for over six years of misconduct in connection with CITIMORTGAGE’s participation in the Federal Housing Administration (“FHA”) Direct Endorsement Lender Program.  In the settlement,CITIMORTGAGE “admits, acknowledges, and accepts responsibility” for certain conduct alleged in the Complaint including, “[failing] to comply fully with all HUD-FHA requirements with respect to certain loans,” and “[submitting] to HUD-FHA certifications stating that certain loans were eligible for FHA mortgage insurance when in fact they were not.”  CITIMORTGAGE also admitted that, as a result of its conduct, HUD incurred losses when certain loans that should never have been endorsed defaulted and agreed to pay $158.3 million to the United States in damages under the False Claims Act.  The settlement was approved today by United States District Judge Victor Marrero.   

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.” 

HUD General Counsel Helen Kanovsky stated: “It is critically important that FHA approved lenders meet our requirements for origination and underwriting of FHA loans.   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.”

HUD Inspector General David A. Montoya stated: “This settlement demonstrates that lenders are held accountable to strict underwriting standards.  I want to assure all Americans that my office will remain vigilant in defending their interests, especially during this critical time for our country’s economic recovery.  We are committed to aggressively pursuing those whose misconduct contributed to the housing crisis and those who flagrantly continue to do so.”  Read more.