Ultra transparency and Citigroup's mortgage origination practices

A Bloomberg article on Citigroup's settlement of a whistle-blower suit over its mortgage origination practices highlighted its broken mortgage processing system.

As regular readers know, with ultra transparency the current performance of the Citigroup originated mortgages is easy to monitor and compare against other mortgage originators.

This allows market participants to perform two simple analysis to identify a broken mortgage processing system.

• If the percentage of mortgages originated that subsequently become delinquent is excessive relative to the representation of the quality of the mortgage at the time of origination; and

• If the percentage of mortgages originated that subsequently become delinquent is excessive relative to peer group performance.

More importantly, as a result of this analysis, market participants will exert discipline by paying less for Citigroup's mortgages knowing that they are riskier than they are represented.

Four years after rotten mortgages helped trigger a global financial crisis, Sherry Hunt said her Citigroup Inc. quality-control team was still finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers. 

Instead of reporting the defects to the Federal Housing Administration, the bank saddled the agency with losses by falsely declaring the loans fit for its federal insurance program, according to a complaint filed yesterday by the U.S. Attorney’s Office in Manhattan. Citigroup agreed to pay $158.3 million to settle the claims, and admitted that it certified loans for FHA backing that didn’t qualify.