NEW YORK — A Citigroup Inc. mortgage unit has agreed to pay $158.3 million to resolve allegations by the U.S. related to the quality of loans it submitted to a government-backed mortgage insurance program.

As part of the settlement, CitiMortgage Inc., a subsidiary of Citi's banking business, admitted and acknowledged it submitted loans to be insured by the U.S. Department of Housing and Urban Development that didn't meet the program's underwriting requirements.

"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," said Preet Bharara, the U.S. Attorney in Manhattan.

Wednesday's settlement is the latest effort by federal prosecutors to pursue civil penalties against companies that allegedly played a role in the housing crisis.

Last year, federal prosecutors in Manhattan brought similar civil lawsuits against privately held Houston home lender Allied Home Mortgage Capital Corp. and Deutsche Bank AG over alleged misrepresentations regarding the government-backed program, which was administered by the Federal Housing Administration.

Last week, Bank of America Corp. agreed to pay $1 billion to settle civil allegations by federal prosecutors in Brooklyn over similar alleged conduct regarding FHA loans.

The pact follows a separate, but historic $25 billion settlement with five banks, including Citigroup, announced last week over alleged foreclosure abuses by lenders.

In a settled lawsuit filed in Manhattan federal court Wednesday, prosecutors alleged more than 30% of the nearly 30,000 mortgages originated or underwritten by CitiMortgage since 2004 and guaranteed by the U.S. government have defaulted. HUD has paid out nearly $200 million in insurance claims and expects to pay more in the future.

Like other lenders allowed to approve FHA insurance, CitiMortgage was required to perform quality-control procedures on mortgages after they were made. For example, the company was supposed to verify borrower income and employment status, according to the Justice Department.

Prosecutors alleged Citi failed to implement quality control measures designed to protect HUD and the public from "reckless lending." In the lawsuit, prosecutors alleged Citi's business production units applied what they described as "brute force" to pressure Citi's quality control managers to downgrade their findings.

"We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as robust as possible," a Citigroup spokesman said in a statement. "Our government-related business is very important to us and we will continue as a participant in the FHA's Direct Endorsement Lender Program with the full support of HUD. We are committed to continuing to work with HUD to make mortgage loans available to low- and moderate-income borrowers through the FHA program."

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