Citigroup Inc. agreed Wednesday to pay $158.3 million to settle claims that its mortgage unit improperly originated Federal Housing Administration loans, a swift reminder that the massive national mortgage deal does not insulate banks from other mortgage-related claims.
The settlement of FHA claims comes less than a week after Citigroup joined the four largest mortgage servicers in a $25 billion settlement with state attorneys general and the Department of Justice. That deal covered the banks' abusive mortgage and foreclosure practices collectively known as robo-signing.
Citigroup separately on Wednesday agreed to settle the FHA-related claims made in a lawsuit filed by Preet Bharara, the U.S. Attorney for the Southern District of New York; Helen Kanovsky, general counsel for the Department of Housing and Urban Development; and HUD's Inspector General David A. Montoya.
As part of the settlement, Citigroup "admits, acknowledges, and accepts responsibility" for certain conduct alleged in the complaint, including failing to fully comply with all HUD and FHA requirements "with respect to certain loans," according to a press release from Bharara's office.
The complaint alleged that the bank's CitiMortage unit certified to HUD that loans were eligible for FHA mortgage insurance "when in fact they were not," according to the release. CitiMortgage also admitted that HUD incurred losses on loans that defaulted and that should never have been made in the first place.
Citigroup spokesman Mark Rodgers said the FHA claims were part of "related mortgage litigation" the bank disclosed last week in discussing the national settlement. The bank has taken charges for the $158.3 million payment in its fourth quarter earnings, he added.
Because the actual terms of the national mortgage settlement still are not public, it is unclear whether HUD has offered to release banks from liability related to loss-mitigation efforts on delinquent FHA-insured loans. The settlement with Citigroup seems to imply that HUD is negotiating settlements with individual banks for lax underwriting, quality control and mortgage origination practices.
If a bank submits a mortgage-insurance claim to the FHA and HUD finds evidence that the underlying mortgage was improperly handled, the bank can be held liable for treble damages under the False Claims Act. Such fines amount to three times the sum of the original claim submitted by the lender.
Rodgers said in an emailed statement that Citigroup takes its quality assurance processes "seriously," and has "pro-actively undertaken process improvements to ensure that they are as robust as possible."
The bank will continue to originate FHA loans and is "committed to continuing to work with HUD to make mortgage loans available to low- and moderate-income borrowers," he added.
The settlement for damages under the False Claims Act was approved Wednesday by U.S. District Judge Victor Marrero.