By Michael Corkery
Lehman Brothers Holdings had its whistleblower. Now it appears Citigroup had one, too.
His name is Richard M. Bowen III.
- Bloomberg News
- Richard Bowen testifying today
And in written testimony prepared for the Financial Crisis Inquiry Commission and posted on the commission’s Web site, Bowen said he started issuing “warnings in June 2006 and attempted to get management” to addresses related “critical” credit risks.
He says he was worried about the fact that 60% of the roughly $50 billion of prime mortgages that Citigrup bought and sold annually were “defective.” Bowen said, “a mortgage file that is not underwritten to Citi policy, or it does not contain all policy-required documents, is considered a defective file.”
Bowen oversaw quality control in Citigroup’s consumer-lending department. A licensed CPA, Bowen worked as a senior vice president in the Citigroup’s mortgage unit from 2002 and 2005. He was promoted to the chief business underwriter in the consumer division unit in 2006. He no longer works at Citigroup.
“In mid-2006, I discovered that over 60% of these mortgages purchased and sold were defective,” he said. Although Citigroup didn’t underwrite the loans, Bowen worried that investors who bought the loans from Citigroup could force the bank to buy them back because it had vouched for their credit quality.
Bowen also described what he termed the loosening of Citigroup’s standards on the pools of subprime mortgage that it was willing to buy from mortgage companies.
“During 2006 and 2007 I witnessed many changes to the way the credit risk was being evaluated for these pools during the purchase processes.” He said a large number of underwriting decisions were reversed on “mortgage loans from ‘turn down’ to ‘approved.’ And variances from accepted Citi credit policy were made. Subprime mortgage pools, many over $300 million, were purchased even though the minimum credit-policy-required-criteria was not met.”
Bowen sent an email to Robert Rubin and three other members of uppper management in November, 2007, raising his concerns and asking for an investigation by officials outside of the consumer-lending department.
Bowen testifies this afternoon, Rubin is scheduled to testify Thursday.
A Citigroup spokeswoman said in a statement: “The issues raised by Mr. Bowen were promptly and carefully reviewed when he raised them and corrective actions were taken.”
