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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Feb 16, 2012

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Sherry hunt, a current resident of Silex, Missouri, began a career in the field of mortgage loan processing in 1975 for a small lender in Fairbanks, Alaska. Then in 2004 she was hired by Citigroup, and it wasn’t long at all before she noticed that her new company was not only performing unscrupulous behavior, but it was encouraging it.


“I had to do something to stop them,” Hunt told Bloomberg. “I felt that if I were brave enough to come forward and take a stand, then maybe others would, too.”


The stand she took did contribute to exposing the mortgage loan originating giant’s actions, and ultimately led to a $158.3 million settlement—which, according to Jerika Richardson, a spokesperson for the U.S. Attorney’s Office in the Southern District of New York, amounts to the second largest mortgage loan fraud case ever.


‘Brute Force’


Hunt was in charge of checking for fraud and defects in filed home loans, and relaying any problems they noticed to the FHA. She acted as a quality control manager, and when she found problems with the “quality” of the loans, she’d forward them on to the next group that were supposed to put flags on these loans to prevent them from receiving FHA insurance.


But she found her co-workers constantly arguing with her over the soundness of the loans, and would continuously downplay defects she found in the loans. The “gatekeepers,” those who saw the loans after the quality control managers, began using what they would refer to as “‘brute force’ to pressure Citi’s quality control managers” into ignoring the defects, according to the government’s complaint against Citigroup, reported Bloomberg.


“They started beating us up over the quality-control reports,” she told Bloomberg. “All a dishonest person had to do was change the reports to make things look better than they were. I wouldn’t play along.”


Some of her colleagues were offered monetary incentives, which were essentially bribes, to reduce the number of problems they found. Citigroup constantly badgered Hunt to relax her reports and to disregard even the most basic of home loan deficiencies.


Then when brute force tactics failed, the bank turned to humiliation. At a quarterly staff meeting with over 1,000 people in attendance, CitiMortgage managers gave a “Star Players Award” to those who successfully challenged the negative reviews submitted by quality-control managers.


“Many of the quality-assurance underwriters who sat in those meetings were humiliated in front of everyone,” explained Hunt.


Of the 30,000 mortgage loans Citigroup has approved of since 2004, more than 30 percent have quit paying, according to the complaint against the originator. That amounts to a $1.44 billion loss—so far.


Then the Downright Illegal…


When she became aware that her colleagues were insisting she “look the other way,” Hunt decided then and there she would whistle-blow.


While “looking the other way” is breaking the law, it’s difficult to prove someone blatantly ignored problems they “supposedly” saw—even when that happens time and time again, year after year.


But when records begin to be erased, that’s when Citigroup crossed the threshold into the obviously illegal.


In one instance, there were over 1,000 home loan records that Hunt’s team identified as possibly fraudulent that were completely erased.


“A substantial percentage of those claims resulted from loans that were ineligible for FHA insurance and never should have been insured,” the government said in the complaint, according to Bloomberg.


Hunt filed a lawsuit, and from her inside testimony, an investigation was launched. The mortgage loan originator was accused of spotty underwriting and a full investigation into the group responsible for the shoddy underwriting practices was launched.


The head of that group was fired, and an alarming 15 percent of all loans sold to Freddie Mac were found to be misrepresented and volatile.


After taxpayers contributed $45 billion to bailout this bank, some of Citigroup’s employees went on to take advantage of their situation and milk the free money their business was given. When all was said and done, Citigroup lost $29.3 billion of that bailout due to misrepresented mortgage loans. The testimony from a single woman who had a personal vendetta to remain honest led to the exposure of this banks, which otherwise may have remained hidden.