Billion$ In Pooled Loans Were Defective, Ex-Citigroup’s Chief Underwriter Warned Bosses

eCreditDaily reports:

• Beginning in 2006, Citigroup’s chief underwriter overseeing $90 billion in loans warned the institution’s top bosses that at least 60 percent of mortgages purchased and sold were “defective.” By 2007, as the subprime mortgage bubble would give way to a housing market collapse, Citigroup’s Consumer Lending Group was sitting on pools of subprime mortgages with a defective ratio of 80 percent.

• Richard Bowen, the former Citi chief underwriter and senior vice president, testified before the Financial Crisis Inquiry Commission today, outlining unheeded warnings to [Robert] Rubin and other top Citi executives. Rubin, the former chairman of the executive committee of Citigroup’s board of directors, is to testify before the panel on Thursday.

• “Beginning in 2006, I issued many warnings to management concerning these practices, and specifically objected to the purchase of many identified pools. I believed that these practices exposed Citi to substantial risk of loss,” Bowen said in prepared testimony. Most notable was the lack of strict lending standards. Stricter credit oversight was abandoned in the rush to acquire mortgages originated by third-party underwriters for the purpose of selling in pools within mortgage-backed securities to the government sponsored enterprises, Fannie Mae and Freddie Mac, or Wall Street investors.

• This channel – from near blind origination into the hands of eager investors – was the underlying pipeline the fueled the financial meltdown of 2008, and the subsequent credit crunch and foreclosure crisis.

For more, see Ex-Citi Exec Warned Bosses of ‘Defective’ Mortgage Pools.