February 18th, 2012
Econintersect: The news sneaked by with little notice on Wednesday (February 15). Citigroup (NYSE:C) agreed to pay $158.3 million to settle claims that its mortgage unit defrauded the government through the company’s actions over a six year period. According to The New York Times the government said that CitiMortgage had fraudulently certified 30,000 mortgages for FHA (Federal Housing Administration) insurance. Many certifications were “knowingly and recklessly false.” (Quotes were in the NYT article.) More than 1/3 of the improperly certified mortgages have gone into default so far. Almost half (47%) of the mortgages written in 2006 and 2007 have already defaulted. (Click on picture for huge enlargement of a prime quality foreclosure property.)
From The New York Times:
Preet Bharara, the United States attorney in Manhattan, said lenders for too long viewed “insurance of their mortgages like they were playing with house money.”
As part of the civil fraud settlement, Citi accepted responsibility for failing to comply with government requirements and submitting certifications that were fraudulent.
The payments are in addition to the $2.2 billion Citigroup has to pay in connection with the $26 billion mortgage loan settlement announced last week by the Justice Department and the nation’s top mortgage lenders.
The following is the original: Let’s see – 30,000 mortgages and 10,000 already defaulted. For every $100,000 of mortgage principal that is $1 billion dollars defaulted and maybe half lost by the time the properties are resold out of foreclosure. On that basis, so far the cost would be $500 million to the FHA insurance coverage (tax payer dollars) if the average mortgage was $100,000. That is worth $158 million????
This editor believes proper restitution would be $500 mllion to the government plus compensation to the communities for damages resulting from the fraud plus damages to the property owners remaining in those communities who are living with the resulting blight.
And finally, hundreds of millions of dollars in fraud screams for criminal prosecution of top executives who were responsible for the execution or who should have been responsible for the oversight and prevention of the fraud.
Update 19 February 2012: GEI News (19 February 2012) compares the average loss per default in the case discussed here (stated to be $6,700) with the average for all defaulting mortages (estimated to be $67,000, in the same ballpark as the $50,000 in the original editor's note). Only 1/10 as much loss for these mortgages as for the average of all mortgages? Something smells fishy here.
Using the average for all foreclosures the settlement should have been for $670 billion restitution plus costs and punitive damages.
Hat tip to Roger Erickson.