Citigroup whistleblower says he has no regrets

It wasn't Sherry Hunt's original intent to go public on the shoddy quality control at a mortgage unit at Citigroup, her employer since 2004.

But by March 2011, as it became apparent to her that the problems were getting worse and not being addressed, the Missouri quality assurance manager decided enough was enough.

"I set up an appointment with human resources and ethics and told them everything," Hunt recalled in a telephone interview. "They did some cursory investigation. The sad part is, they never ever told me, 'Sherry, you were right,' or 'Sherry, you're looking at this wrong.' There were no assurances."

Instead, Hunt, who got her start in the mortgage industry in 1975 at age 18, filed a whistleblower lawsuit against Citigroup, the third-largest US bank by assets.

The United States joined the civil fraud case, which raised claims under the False Claims Act, a federal law designed to recover money taken from the government by fraud, and discourage further wrongdoing. Whistleblowers can receive up to 25% of settlement amounts in such cases.

On Wednesday, Citigroup agreed to pay $158.3 million to settle. Hunt said her share will be $31 million, before taxes and attorney fees. Her lawyer declined to disclose those fees.

In settling, Citigroup accepted responsibility for conduct alleged in the complaint, dating back to 2004.

The government accused CitiMortgage of misleading it into insuring thousands of risky home loans that it knew or should have known did not qualify for insurance from the Federal Housing Agency, costing taxpayers nearly $200 million in claims.

CitiMortgage had certified for FHA insurance nearly 30,000 home loans valued at more than $4.8 billion since 2004, but more than 30% -- or 9,636 loans -- had gone into default, the Justice Department said. The default rate topped 47% for such loans made in 2006 and 2007, it added.

The government also said CitiMortgage failed to report many underwriting flaws and other problems as required to the FHA, part of the US Department of Housing and Urban Development. This even extended to mortgages where borrowers were so stressed that they could not make their first payment.

'Brute Force'

In the settlement, Citigroup accepted responsibility for improperly certifying many loans for insurance, and failing to comply with disclosure rules.

A bank spokesman, Mark Rodgers, said the New York-based bank had improved its procedures, and plans to continue participation in the FHA program. Citigroup declined to comment on allegations in the complaint or by Hunt.

The complaint contended that senior bank personnel applied "brute force" to quality control managers to effectively sweep "defects" under the rug.

Hunt said such defects, mostly the fault of borrowers, included mismatched signatures on loan documents, white-out on income documentation, and mistakes on employment statuses. She said there were also errors on whether borrowers planned to live in homes they were buying as required for FHA loans.

But Citigroup had tied some salaries to the infrequency with which such defects cropped up, according to the complaint.

Hunt lives with her husband in Silex, Missouri, a St. Louis suburb close to CitiMortgage headquarters in O'Fallon, Missouri.

She said she began working in the mortgage industry in 1975 at the First National Bank of Fairbanks in Alaska, and has since April 2008 been a vice president and quality assurance manager at CitiMortgage.

At CitiMortgage, Hunt said she got pressure to keep the number of defects down, especially if the%age were above the 5% that would be considered acceptable.

She recalled a January 2011 "Star Players Award" ceremony attended by about 1,000 people, to honor workers who challenged defects reported by the quality control unit.

"Three people won this award -- they stood up, everyone applauded, and they (were told) they effectively rebutted Quality Assurance's findings," Hunt recalled. "That statement made my team members and other team members feel like morons: that they were making bad decisions, when they were not."

By mid-year, long after she had first raised concern to the human resources unit, she recalled that "upper senior management told me and one of my peers that our asses were on the line if these defects didn't come down. I took that as a threat. That was the final act that pushed me into the direction I went."