Citigroup Defrauding It’s Mortgage Clients?
I find it troubling that regulators seek to bury wholesale origination (brokers) in new regulation while retail origination is being painted as the good guy in the mortgage meltdown. The only difference between wholesale origination and retail origination is the lobbying power of the latter dwarfs that of the former.
Regulators, through their proposed legislation and regulatory changes, would have you believe that fraud only exists in the wholesale origination end of the business. Nothing could be further from the truth. Retail lenders are equally prone to fraudulent lending activities as are the wholesale originators. Apparently, the regulators haven’t recognized this.
In the current environment of massive lending changes and industry scrutiny, fraudulent origination practices have been uncovered at Citigroup. Essentially they have been misrepresenting, to their adjustable rate mortgage clients, that their rate resets will be higher than their present mortgage rates, therefore they should refinance to a fixed rate mortgage.
This would be beneficial to their clients if in fact the resets were higher than current rates. However, they are not higher and in fact are lower. Consider this post at Mish’s Global Economic Trend Analysis. Emphasis is mine.
Question 1. What happens to our loan on the anniversary? Will it go down?
Answer: It is very unlikely that it will go down. Would you like to refinance?By the way the existing rate on the loan in the Email above is 6.00%. That rate is based on the one-year treasury rate plus an index of 2.75. On March 17, the one-year T-Bill rate was 1.53 as quoted during the conference call. Let’s do the math. 1.53 + 2.75 = 4.28 (rounded to the nearest higher 1/8 would be 4.375). Citigroup told the client the new rate would be above 6.00%
The above conversation, in conjunction with the documented hard evidence above, suggests a pattern deceit by Citigroup. I am wondering how many Citigroup customers have refinanced to a higher rate and payment based on inaccurate rate quotes from Citigroup mortgage specialists.
I am not a lawyer. I do not know if any of this violates truth in lending laws, fair lending practices laws, or any other laws. However, I do know this is a mess, and if I was a customer of Citigroup I would be questioning whether or not I could believe anything they say.
In the sake of fairness, if Citigroup has a different explanation for the above examples, I will post it.
Interestingly, nothing new from Citigroup has been posted on the site. Also here is another snippet from a lawyer who responded to the post.
I received an Email from a lawyer who writes:
I am a lawyer. And, you don’t need to be a lawyer to KNOW fraud when you see it, and I’d say that what you describe – deliberately misquoting rates, etc. is fraud (there are two types of fraud – fraud in fact and fraud in the inducement, but we don’t have to get in to that, and you may well know the difference (and I suspect you do)).
Most law is “common sense” and if something screams “fraud” it most likely is – under whatever particular law – whether statutory law or common law.
If Citi KNOWS the rate is going lower, but says “it is most likely to go higher” and doesn’t give a straight answer, and is stupid enough to have third party witnesses listen to the misrepresentations and/or put them in writing and or have them recorded (and I assume Citi records a lot of stuff by law or company policy), then they deserve to be sued by a lot people.
I encourage you to visit the post on Mish’s blog as it is well documented and easy to understand. There is no question that Citi’s activity is fraudulent in my opinion. I would fire any loan officer in my employ for doing anything that resembled this practice. Institutionalized mortgage fraud, you have got to love it.
I can identify a significant number of retail originators whose ethics are far from above questioning. The above example is not unique even though the regulators would like you to believe so.
When new regulations emerge from this lending crisis, they should be applied fairly to ALL originators and not just wholesale origination. The act of over regulating one type of originator over another stinks of cronyism and unfairness. More importantly, applying regulation on a favoritism basis does little if anything in providing more protections for the consumer.
The regulators aren’t doing the right things, they are just doing things. It makes them look like they are doing something constructive but that clearly is not the case.
For those homeowners who still can, now is the time to take defensive measures. Home values are dropping at historic rates, lenders are tightening up underwriting requirements for the minority of mortgage products still left in the market place. Unemployment is rising. The stock market is falling.
The reasons for taking action right now are numerous. The case for an economic tsunami is real and frightening. But now is not the time to be the proverbial “deer in the headlights”. Negative developments are coming at us at break neck speed. Like a linebacker, homeowners need to read the play and react to it immediately.
You may have heard the commercials “we’re the lender, we write the checks”. 
Some are handicapping the odds of recession at sixty five percent. Today consumer sentiment came in at a fifteen year low. The highly suspect and often revised jobs creation number came in at 94,000 jobs created in November, while the outlook was for 84,000.
When the going gets tough, to hell with integrity, change the rules. We can file this under “the government in it’s attempt to fix a problem only perpetuates it”. Apparently the government and lenders are working out a plan to freeze mortgage payment resets. Here are some 
Furthermore, studies have shown that the mortgage payment reset phenomenon as it stands now, will last for the rest of this decade. By extending these resets for another four to seven years, without addressing the real issue of securitization, will only delay the inevitable and at a greater expense than currently faced with.
In the course of a year, 
The mortgage and real estate meltdown is becoming apocalyptic in size and influence. An annihilation of the U.S. economy is a very real possibility. The pain is spreading globally as well. As bad as it is and it is very bad, the worst is yet to come. If you doubt me, just think about this. Congress has mobilized to “fix” the problem.
The lender’s rules or guidelines are based upon the requirements set forth by the investment firms. In order for lenders to operate efficiently, they must be able to sell their loans to investment firms to free up money to lend yet again. 
Due to an unprecedented number of loan defaults, investment firms are no longer buying any mortgages except those of the highest credit quality. The defaults are due to borrowers agreeing to mortgages with escalating payments they can no longer meet. 
The problem is that borrowers were given improper loans for their circumstances and are unable to repay these loans. Originators could not offer these loans unless lenders were willing to make them. Lenders would not make these loans unless investment firms were willing to buy them. The investment firms and their clients, the buyers of the investments, would not be involved with the mortgage investments unless the rating agencies and risk departments gave these mortgages their stamp of approval.
Having a basic knowledge of the workings of the mortgage industry, it’s plain to see that the political and media elite are wrong in blaming the mortgage brokerage community for the current economic crisis.