WASHINGTON — Citigroup management ignored an internal warning that most of the mortgages it was selling were defective, a former executive testified Wednesday.
Former executives at Citigroup Inc. and New Century Financial Corp. told the Financial Crisis Inquiry Commission on Wednesday how their firms helped create and sell the subprime mortgages and mortgage-backed securities that fueled the housing bubble.
Richard Bowen, right, made the day's biggest news when he said he warned former Citi Chairman Robert Rubin about the looming housing crisis. (Michael Beller/MNS)
The executives testified to the commission right after former Federal Reserve Chairman Alan Greenspan left the hearing room after a morning of testimony. Read complete story on Greenspan’s defense of his actions.
Greenspan fefends his tenure at the Fed.
Richard Bowen, who was business chief underwriter during his time at Citigroup, said he warned executive committee chairman Robert Rubin about the destructive practices occurring in the company’s mortgage arm.
Bowen said he discovered in 2006 that “60 percent of the mortgages bought and resold by the company were defective,” meaning they were not up to Citi’s guidelines.
When asked how Rubin responded, Bowen said, “I received a very brief phone call from a general counsel within the company. He said they were doing background research and didn’t need to talk to me.”
Rubin and former Citigroup chief executive officer Charles Prince will testify to the commission on Thursday.
Other witnesses on Wednesday deflecting responsibility for the credit boom and subsequent collapse that eventually caused a global recession.
Patricia Lindsay defended her role at New Century, and blamed others.
Commission member John Thompson asked her, “Is it fair to say that the risk management function at New Century was window dressing to perpetrate fraud?”
The department that “I served in was in charge of fraud detection and prevention, so I like to think we did a pretty good job,” Lindsay said. “As far as the rest of the business unit goes, as far as producing loans that borrowers couldn’t afford, I think it was a mess.”