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fascinating stuff. I just turned it on in time for to catch the questioning being done by former Treasury General Counsel, Peter Wallison.
He's questioning Richard Bowen, a former VP & Business Chief Underwriter at CitiMortgage
***
Q: What percentage of mortgages underwritten were prime and what percentage were subprime?
A: Largest volumes on the prime side
Q: When the "misunderwriting" occurred, did it occur more frequently with subprime or prime or did it just happen generally?
A: By virtue of the larger volume of the prime side, the absolute numbers were greater.
Q: Do you know of any difference between the reactions of the GSEs and the reactions of Wall Street firms to improperly underwritten loans?
A: I did not interface in that area.
Q: So you wouldn't know if investors forced Citi to repurchase? Or whether the GSEs forced Citi to repurchase? You were aware of the risks that Citi was taking because of the possibility of repurchase, but you don't know whether it actually happened.
A: No, that was a different area of the organization.
Q: Do you know of the actual delinquency rates of these loans that were improperly underwritten?
A: On the prime side, there was reporting that was developed at the end of 2007 that did indicate, and this was the first reporting to my knowledge that had been developed, that did indicate a significantly higher delinquency rate...
Q: That was the first time in 2007 when that seemed to be occurring?
A: This was as of 2007, but it looked at all of the loans that were written in 2006 and 2007. That was solely on the prime side.
Q. Thank you, that is interesting. Your memo to Robert Rubin....an extraordinary document that we have been privileged to see...it was quite candid. Did you ever receive a response from anyone?
A: At what point, commissioner?
Q: From that time until the time you left the institution.
A: From the point at which I sent the e-mail to Mr. Rubin?
Q: That e-mail.
A: I sent the e-mail on November the 3rd. I received a very brief phone call on Tuesday November the 6th I guess from a general counsel within the company. He said they had received my e-mail, they took it seriously, they were doing some background investigation and didn't really need to talk to me at that time. I sent two follow up e-mails to the general counsel, one in November and one in December of 2007. I explained that there were details that he needed to know in this background investigation that posed extreme risk to Citi shareholders and to please contact me. I was not contacted until January the 7th of 2008.
Q: And when you were contacted in 2008, what were you told?
A: We initiated a series of conference calls. I spent over five hours in conf. calls with the general counsel and he involved another general counsel over internal investigations going into the details underlining my e-mail to Mr. Rubin.
Q: Other that contacting you was any action taken with respect to people that were involved with the underwriting process?
A: I do not know.
Q: When did you leave the bank?
A: Physically or from their employ?
Q: haha, are you a lawyer? I would say their employ.
A: I left the organization on January 23rd, 2009.
Q: So you were there about a year after the point you had that conversation with the general counsel's office?
A: I was not there physically.
Q: Would you enlarge upon this a little bit so we can understand what you mean by this? Were you sent somewhere else, where you in prison?
Now at this point, another member of the commission panel pipes in. I have no idea who it was. It sounds like he is in Bob Rubin's pocket though.
He says: Can I make an observation? I do not believe that a subject that we should be discussing are specific employment matters, Mr. Wallison.
Wallison: Oooh Alright. I won't ask any further questions.
********
Here's the Associated Press:
Fmr. Citi exec warned Rubin about mortgage risk
By DANIEL WAGNER (AP) – 45 minutes ago
WASHINGTON — A former executive of Citigroup Inc. is telling a panel investigating the roots of the financial crisis that he warned former chairman Robert Rubin and other bank leaders about the coming mortgage crisis back in 2006.
Richard Bowen says other Citigroup executives were violating the bank's own risk management standards starting in 2006. He says he discovered in the middle of that year that over 60 percent of the mortgages bought and resold by subprime subsidiary Citifinancial Mortgage were defective. Bowen was chief underwriter for the division.
Bowen says he issued many warnings to management about the mortgage risk starting in 2006, and e-mailed Rubin in November 2007.
He's questioning Richard Bowen, a former VP & Business Chief Underwriter at CitiMortgage
***
Q: What percentage of mortgages underwritten were prime and what percentage were subprime?
A: Largest volumes on the prime side
Q: When the "misunderwriting" occurred, did it occur more frequently with subprime or prime or did it just happen generally?
A: By virtue of the larger volume of the prime side, the absolute numbers were greater.
Q: Do you know of any difference between the reactions of the GSEs and the reactions of Wall Street firms to improperly underwritten loans?
A: I did not interface in that area.
Q: So you wouldn't know if investors forced Citi to repurchase? Or whether the GSEs forced Citi to repurchase? You were aware of the risks that Citi was taking because of the possibility of repurchase, but you don't know whether it actually happened.
A: No, that was a different area of the organization.
Q: Do you know of the actual delinquency rates of these loans that were improperly underwritten?
A: On the prime side, there was reporting that was developed at the end of 2007 that did indicate, and this was the first reporting to my knowledge that had been developed, that did indicate a significantly higher delinquency rate...
Q: That was the first time in 2007 when that seemed to be occurring?
A: This was as of 2007, but it looked at all of the loans that were written in 2006 and 2007. That was solely on the prime side.
Q. Thank you, that is interesting. Your memo to Robert Rubin....an extraordinary document that we have been privileged to see...it was quite candid. Did you ever receive a response from anyone?
A: At what point, commissioner?
Q: From that time until the time you left the institution.
A: From the point at which I sent the e-mail to Mr. Rubin?
Q: That e-mail.
A: I sent the e-mail on November the 3rd. I received a very brief phone call on Tuesday November the 6th I guess from a general counsel within the company. He said they had received my e-mail, they took it seriously, they were doing some background investigation and didn't really need to talk to me at that time. I sent two follow up e-mails to the general counsel, one in November and one in December of 2007. I explained that there were details that he needed to know in this background investigation that posed extreme risk to Citi shareholders and to please contact me. I was not contacted until January the 7th of 2008.
Q: And when you were contacted in 2008, what were you told?
A: We initiated a series of conference calls. I spent over five hours in conf. calls with the general counsel and he involved another general counsel over internal investigations going into the details underlining my e-mail to Mr. Rubin.
Q: Other that contacting you was any action taken with respect to people that were involved with the underwriting process?
A: I do not know.
Q: When did you leave the bank?
A: Physically or from their employ?
Q: haha, are you a lawyer? I would say their employ.
A: I left the organization on January 23rd, 2009.
Q: So you were there about a year after the point you had that conversation with the general counsel's office?
A: I was not there physically.
Q: Would you enlarge upon this a little bit so we can understand what you mean by this? Were you sent somewhere else, where you in prison?
Now at this point, another member of the commission panel pipes in. I have no idea who it was. It sounds like he is in Bob Rubin's pocket though.
He says: Can I make an observation? I do not believe that a subject that we should be discussing are specific employment matters, Mr. Wallison.
Wallison: Oooh Alright. I won't ask any further questions.
********
Here's the Associated Press:
Fmr. Citi exec warned Rubin about mortgage risk
By DANIEL WAGNER (AP) – 45 minutes ago
WASHINGTON — A former executive of Citigroup Inc. is telling a panel investigating the roots of the financial crisis that he warned former chairman Robert Rubin and other bank leaders about the coming mortgage crisis back in 2006.
Richard Bowen says other Citigroup executives were violating the bank's own risk management standards starting in 2006. He says he discovered in the middle of that year that over 60 percent of the mortgages bought and resold by subprime subsidiary Citifinancial Mortgage were defective. Bowen was chief underwriter for the division.
Bowen says he issued many warnings to management about the mortgage risk starting in 2006, and e-mailed Rubin in November 2007.
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