Ex-Citi executives face questions on mortgages

[April 20, 2010]  WASHINGTON (AP) -- Two former top executives of Citigroup Inc. are expected to be pressed by a special panel about the banking titan's role in spreading high-risk mortgage debt through the financial system.

Robert Rubin, a former U.S. Treasury secretary who was a senior adviser and chairman of Citigroup during the mortgage and financial crises, and former Citi CEO Charles Prince were due to appear Thursday at the second day of hearings being held by the congressionally chartered Financial Crisis Inquiry Commission.

The panel's goal: to get a firsthand accounting of decisions that inflated a mortgage bubble and triggered the financial crisis.

The focus of the current round of hearings, which wraps up Friday, is high-risk mortgage lending and the way trillions of dollars in risky mortgage debt was spread throughout the system.

Citigroup is being scrutinized because it was heavily involved in every stage of that process. The bank was a major subprime lender through its CitiFinancial unit. Other divisions of Citigroup pooled those loans and loans purchased from other mortgage companies and sold the income streams to investors.

New York-based Citigroup was one of the hardest-hit banks during the credit crisis, as borrowers defaulted on mortgage loans and its losses spiraled into the tens of billions. The bank received a total $45 billion in federal bailout money -- one of the biggest rescues in the government's program.

Critics have said that Rubin, with his vast experience on Wall Street and as Treasury chief during the Clinton administration, should have picked up on the warning signs of the financial crisis and taken a more active role in preventing Citigroup's debacle.

He was one of the most influential figures in American finance in recent years. Rubin was credited with steering the U.S. economy through the Mexican and Asian financial crises, and seen as an innovative big thinker in banking.

At Wednesday's hearing, a former Citi mortgage executive accused bank officials of violating their own risk-management policies and ignoring his warnings about the looming financial crisis.

Richard Bowen said he raised concerns about mortgage risk starting in 2006. He said he sent an e-mail about it to Rubin and others in November 2007.

Bowen sent weekly messages to managers raising concerns about his group's risk management. But he wrote to Rubin and other executives in 2007, "These breakdowns have not been communicated to or recognized by" Citi's top audit or finance executives.

Bowen said he doesn't know whether any executives acted on his warnings about the bank's purchase of suspect mortgages.

Citigroup disputed his account. Spokeswoman Molly Meiners said in a statement that the issues Bowen raised were "promptly and carefully reviewed when he raised them, and corrective actions were taken."

Earlier Wednesday, Alan Greenspan defended his tenure as head of the Federal Reserve in the years leading up to the crisis. As he has in the past, Greenspan disputed critics who say he kept interest rates too low for too long, encouraging risky lending.

Greenspan also hit back against criticism that his Fed failed to regulate high-risk loans to borrowers who couldn't afford the debt. Many of those loans became the toxic assets that sparked the crisis.

Greenspan insisted that the central bank lacked authority to regulate the nonbank lenders that issued most subprime mortgages.

But Phil Angelides, the panel chairman, referred to internal Fed documents in which staffers had recommended "broad prohibitions on deceptive lending." Angelides said the Fed had issued guidance on predatory lending but had failed to regulate it.

"Why, in the face of all that, did you not act to contain abusive, deceptive subprime lending?" Angelides, a former California state treasurer, asked Greenspan.

Greenspan pointed to a series of actions he said the Fed took. Angelides countered that the Fed's actions covered only 1 percent of the subprime lending market.

"You could've, you should've and you didn't" regulate the lending activities, he said.

[Associated Press; By MARCY GORDON and DANIEL WAGNER]

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