Reforming Foreclosures: How Well Did Citi Keep Its Promise?

In November 2000, Citigroup announced it was creating a Foreclosure Review Unit to make sure its subprime borrowers wouldn’t lose their homes because of “inappropriate or abusive practices” perpetrated at the time the loan was made.

The company said its foreclosure rates were low, but promised to take a look at the issue in light of thousands of mortgages it was inheriting through its merger with Associates First Capital Corp., a Texas-headquartered lender accused of systematic abuses.

According to CitiFinancial, it suspended more than 1,900 foreclosures in 2001 and 2002, forgiving almost $13.7 million via refunds and interest-rate reductions. Citigroup calls the initiative a major achievement in its efforts to clean up Associates and establish itself as an ethical leader.

But critics question whether the foreclosure review program is reaching everyone who’s entitled to relief. In a May 2001 report to New York bank regulators, for instance, Citi said that of 14,980 total foreclosures “in pipeline,” 3,965 had met the criteria for review and that, after a closer look, 331 had been suspended “pending resolution.” Matt Lee, director of a national advocacy group, Fair Finance Watch, says that number—just over 2 percent of the total—is miniscule considering the widespread evidence of predatory loans made by both Associates and Citi mortgage units.

At the same time, consumer attorneys around the country cite cases in which they say Citi was eager to foreclose despite evidence the mortgages weren’t on the up and up. For example:

■ September 2002, Chattanooga, Tenn.: CitiFinancial scheduled a foreclosure sale of a home that had belonged to an elderly couple, Robert and Armanda Lane, who had signed a mortgage with Associates in 1996.

According to a lawsuit filed by a daughter who inherited the house after the Lanes’ death, the loan was tainted by fraud from the start, but Citi did nothing to remedy the problem, instead seeking to take the home even though the monthly payments were current.

CitiFinancial settled the case in April, according to the daughters’ attorney, Tom Greenholtz. The terms of the settlement are confidential.

■ November 2002, Lebanon, Tenn.: James and Margaret Lynn came within two days of losing their home to CitiFinancial.

The couple had gotten in trouble three years ago when they took out a $180,000 mortgage from Associates. The loan was inflated with a $14,689 charge for credit insurance. According to a lawsuit, loan officers lied to them about the insurance and the monthly payments and talked them into signing blank documents by claiming the branch’s computers were down.

The deal left them saddled with a mortgage payment of $1,759 a month—an impossible sum for them to pay, their lawsuit says, because their combined income was barely $1,700 a month.

After the Citigroup-Associates merger, CitiFinancial took over the loan. The Lynns fell farther and farther behind, and last summer Citi obtained a judge’s approval to foreclose and sell the home. The Lynns found an attorney, David Tarpley, who notified the company that they were rescinding the mortgage because it violated truth-in-lending laws.

Citi’s lawyers countered that the loan was valid. They continued toward foreclosure, scheduling a Nov. 21 sale on the courthouse steps. It was only after Tarpley filed suit Nov. 19 that Citi renounced foreclosure. In April the company agreed to a settlement, forgiving about $75,000 of the couple’s debt.

Tarpley says the Lynns’ case raises questions about Citi’s pledge to stop unfair foreclosures, because its review process failed to red-flag such an obviously predatory loan and because it continued with foreclosure efforts even after he had notified the company of the problems with the loan. “They can say they’re good guys and all,” Tarpley concludes, “but the fact is that in this case they were not going to call it off until something effective was done to stop them.”

■ May 2003, Brooklyn, N.Y: Another Citigroup subsidiary, CitiMortgage, scheduled a foreclosure of a home that had been purchased by Valmay Greene, a grandmother -and immigrant from Barbados. In a racial discrimination complaint filed with the U.S. Department of Housing and Urban Development, Greene claims she got taken in by a house-sales scam that left her contending with rats, raw sewage and a $2,300-a-month mortgage—an obligation far outstripping her $1,552 monthly income as a home-health worker.

Greene got her loan in March 2001, through a Brooklyn mortgage broker, but it was transferred to CitiMortgage the same day she signed the documents. Brigit Amiri, an attorney with South Brooklyn Legal Services, contends Citi should have known the broker and the deal were shady, but the company didn’t care, because the mortgage was federally insured—meaning Citi would get its money whether Greene could make the payments or not.

Amiri says Greene was able to save her home—for now—by filing bankruptcy.

Because CitiMortgage is one of Citi’s prime-rate lending units, it’s not covered in the company’s foreclosure review process. But Amiri says her agency has settled at least a half dozen cases in which Citi was seeking foreclosure on fraud-tainted Associates loans.

“Undoubtedly, had we not been involved, people would have lost their homes,” Amiri says. “They’re definitely not unilaterally stopping foreclosures in the cases we’ve seen.”

Citigroup declined to response to questions about Greene’s case, or other questions regarding individual borrowers.