Citi Settles Mortgage Mess - Analyst Blog

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Citigroup Inc. ( C ) has agreed to pay $158.3 million for settling claims that its unit has fraudulently misled the government by submitting risky mortgage loans to a federal insurance program for a period of over six years.

Citi's unit, CitiMortgage, had been accused of ignoring the underwriting requirements of the Federal Housing Administration insurance plan. Though several loans were ineligible for this insurance program, the company fraudulently certified them and those loans were qualified for the insurance program. When these ineligible loans defaulted, the government had to incur significant losses that ensued from the insurance claims.

Besides this settlement, last week Citi also reached a $2.2 billion settlement with state and federal authorities over alleged foreclosure abuses. The company, along with four other large mortgage servicers-- Bank of America Corp. ( BAC ), Wells Fargo & Co. ( WFC ), JPMorgan Chase & Co. ( JPM ) and Ally Financial--reached a settlement worth $25 billion in total with attorneys general from 49 states and several federal agencies.

The settlement will reduce Citi's litigation overhang to some extent. Citi has set aside cash for this settlement and hence would not take additional charges related to it. The company is also improving its underwriting standards and quality-control processes. We believe such measures will support the housing market recovery going forward and stop fraudulent practices in the industry to some extent.

Citi currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BAC , C , JPM , WFC

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