$31m for lifting the lid

2012-06-02 09:36

Sherry Hunt never expected to be a senior manager at a Wall Street bank. She was a country girl, raised in rural Michigan by a dad who taught her to fish and a mum who showed her how to find wild mushrooms.

She got married at 16 and didn’t go to college. After she had her first child at 17, she needed a job.

A friend helped her find one in 1975, processing home loans at a small bank in Alaska. Over the next 30 years, Hunt moved up the ladder to mortgage-banking positions in Indiana, Minnesota and Missouri.

She liked that she was helping people buy houses.

In November 2004, Hunt, now 55, joined Citigroup as a vice-president in the mortgage unit.

The housing market was booming and the bank, the sixth-largest lender in the US at the time, was ­responsible for 3.5% of all home loans. Hunt supervised 65 mortgage underwriters at CitiMortgage’s headquarters in O’Fallon, Missouri.

She and her colleagues inspected loans Citi wanted to buy from outside brokers and lenders to see whether they met the bank’s standards. Citi would vouch for the quality of these loans when it sold them to investors or approved them for government mortgage insurance.

Investor demand was so strong for mortgages packaged into securities that Citigroup couldn’t process them fast enough.

By 2006, the bank was buying mortgages from outside lenders with doctored tax forms, phony ­appraisals and missing signatures, she says.

It was her job to identify these defects in reports to her bosses. Executives buried her findings, Hunt says.

In March 2011, more than two years after Citigroup took ­$45 billion (R384 billion) in bailouts from the US government and ­billions more from the Federal ­Reserve – more than any other US bank – ­Jeffery Polkinghorne, an O’Fallon executive in charge of loan quality, asked Hunt and a colleague to stay on after a ­meeting.

The encounter was brief and tense, Hunt says. The number of loans classified as defective would have to fall, he told them, or it would be “your asses on the line”.

Hunt says it was clear what ­Polkinghorne was asking – and she wanted no part of it.

“All a dishonest person had to do was change the reports to make things look better than they were,” Hunt says. “I wouldn’t play along.”

Instead, she took her employer to court – and won.

In August, five months after the meeting with Polkinghorne, Hunt sued Citigroup in a federal court, accusing its home loan division of systematically violating US mortgage ­regulations.

The US justice department ­decided to join her suit in January.

Citigroup didn’t dispute any of Hunt’s facts; it didn’t mount a ­defence in public or in court. On February 15, the bank agreed to pay $158.3 million to the US government to settle the case.

Citigroup admitted approving loans for government insurance that didn’t qualify under federal housing administration rules. Prosecutors kept open the possibility of bringing criminal charges, without specifying targets.

As a reward for blowing the whistle, Hunt, the country girl turned banker, got $31 million out of the ­settlement paid by Citigroup.

–Bloomberg

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