Bloomberg | Citigroup 46% Gain Masks Flawed Mortgages Freddie Mac Calls Not Acceptable

Citigroup 46% Gain Masks Flawed Mortgages Freddie Mac Calls Not Acceptable

As Vikram Pandit celebrates his first full-year profit as head of Citigroup Inc., an old nemesis clouds the bank’s future: defective mortgages.

Three years after bad home loans helped trigger the recession and six weeks after the government cashed in the last of its $45 billion Citigroup investment, the New York-based bank is still selling mortgages that violate quality standards, according to an internal Freddie Mac review obtained by Bloomberg.

Fifteen percent of the performing loans Citigroup sold to the government-owned mortgage-finance company in the second half of 2009 and the first half of 2010 had such flaws as missing appraisals or insurance documents or income miscalculations, according to the review of 375 mortgages. The target for defects should be about 5 percent, said Tim Rood, a former executive with Freddie’s sister agency, Fannie Mae, and now managing director at Washington-based advisory firm Collingwood Group LLC.

Pandit, Citigroup’s chief executive officer since December 2007, faces $100 million in payouts on the loans if customers demand refunds for mortgages that stop paying, according to Paul J. Miller of FBR Capital Markets in Arlington, Virginia. Miller based his estimate on the numbers in the Freddie Mac memo. Underwriting gaps that led to failed mortgages contributed to $83.7 billion in credit losses since 2007 for Citigroup and to the government takeover of the mortgage-finance business.

‘Surprising Statistic’

“What you hear from the banks is it’s overwhelmingly mortgages that were originated in ‘05, ‘06, ‘07 and a bit into ’08 that are getting put back to the banks,” said Chris Kotowski, an analyst for New York-based Oppenheimer & Co. “In 2010, if Freddie still finds 15 percent of performing mortgages had flaws, that’s a surprising statistic. I assume thoughtful investors will be surprised.”

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2 Responses to “Bloomberg | Citigroup 46% Gain Masks Flawed Mortgages Freddie Mac Calls Not Acceptable”
  1. l vent says:

    Some in the know are claiming 97% of the debt in the U.S. is unsecured. I see a nationwide default on credit coming as well as a nationwide tax revolt by the people. If this does not happen by the people and we allow them to keep raising our taxes we will all become debt slaves to a totalitarian facsist regime. I hear they already have the yuan waiting in the wings after they are through killing the greenback because this is what they wanted all along. A one world communist currency. When the Chinese control the currency they will completely own us. It is time for the State’s to secede from the dictatorship. We The People must force them to fail at their evil plan or there will be no more Freedom or Democracy. The war machine and the Oligarchy is bankrupting the Nation, not the people.

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