oversight

CitiMortgage Did Not Properly Determine Borrower Eligibility for FHA's Preforeclosure Sale Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                 Issue Date
                                                                       September 30, 2011
                                                                 
                                                                 Audit Report Number
                                                                        2011-KC-1005




TO:         Deborah Holston, Acting Deputy Assistant Secretary for Housing, HU

            //signed//
FROM:       Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT: CitiMortgage Did Not Properly Determine Borrower Eligibility for FHA’s
            Preforeclosure Sale Program


                                   HIGHLIGHTS

 What We Audited and Why

             We reviewed 68 Federal Housing Administration (FHA) claims submitted by
             CitiMortgage, Inc., of O’Fallon, MO. We selected Citi due to an issue identified
             in a prior review and a review conducted by HUD’s quality assurance division.

             Our audit objective was to determine whether Citi properly determined that
             borrowers were eligible to participate in the Preforeclosure Sale Program.

 What We Found
             Citi improperly submitted claims totaling nearly $5 million for 63 of the 68
             preforeclosure sales reviewed without properly determining borrower eligibility to
             participate in the Program. Citi did not always verify that the borrowers had
             defaulted or were in imminent danger of default as a result of an adverse and
             unavoidable financial situation. Additionally, Citi did not complete
             comprehensive reviews of the borrowers’ financial records to demonstrate that the
             borrowers did not have sufficient income or assets to sustain the mortgage.
What We Recommend


           We recommend that the U.S. Department of Housing and Urban Development
           (HUD) require Citi to reimburse HUD for the 63 improper claims totaling nearly $5
           million. Additionally, we recommend that HUD require Citi to develop and
           implement policies and procedures to ensure that it properly determines the
           eligibility of borrowers to participate in the Program.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.


Auditee’s Response


           We provided the draft report to Citi on August 12, 2011, and held an exit
           conference on August 18, 2011. Citi provided its written response on August 30
           and its final loan-level responses on September 2, 2011. Citi generally disagreed
           with our audit findings.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report.




                                            2
                             TABLE OF CONTENTS

Background and Objective                                                         4

Results of Audit
        Finding 1: CitiMortgage Did Not Properly Determine Preforeclosure Sale   5
        Eligibility for 63 Borrowers

Scope and Methodology                                                            9

Internal Controls                                                                11

Appendixes
   A.   Schedule of Questioned Costs                                             12
   B.   Auditee Comments and OIG’s Evaluation                                    13
   C.   Schedule of Preforeclosure Sale Deficiencies                             60
   D.   Case Narratives                                                          62




                                              3
                          BACKGROUND AND OBJECTIVE

CitiMortgage is a nonsupervised direct endorsement lender located at 1000 Technology Drive in
O’Fallon, MO. Citi received approval from the Federal Housing Administration (FHA) in May
1981 and currently operates 18 branch offices in 10 States and the District of Columbia.

FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United
States and its territories. It insures mortgages on single-family and multifamily homes including
manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring more
than 34 million properties since its inception in 1934. FHA mortgage insurance provides lenders
with protection against losses as the result of homeowners defaulting on their mortgage loans. The
lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s
default. Loans must meet certain requirements established by FHA to qualify for insurance.

The PreForeclosure Sale Program allows borrowers in default (resulting from an adverse and
unavoidable financial situation) to sell their home at fair market value and use the sale proceeds
to satisfy the mortgage debt even if the proceeds are less than the amount owed. This Program is
appropriate for borrowers whose financial situation requires that they sell their home, but they
are unable to do so without FHA relief because the gross recovery on the sale of their property
(that is, sales price minus sales expenses) is less than the amount owed on the mortgage. Under
no circumstances should the Program be made available to borrowers who have abandoned their
mortgage obligation despite their continued ability to pay1. Further, the borrower must not be
encouraged to default on his or her mortgage for the purpose of participating in the Program2.

Citi closed 1,884 FHA preforeclosure sales in 2010 with claims totaling more than $146 million.
Each claim compensated Citi for the difference between the sales proceeds and the amount owed
on the mortgage, plus incentives earned by Citi and/or the borrower, if applicable3; the shortfall
and incentives are paid out in a single payment.

Our audit objective was to determine whether Citi properly determined whether borrowers were
eligible to participate in the Program.




1
  Mortgagee Letter 2008-43, Pre-Foreclosure Sale Introduction
2
  PreForeclosure Sales Program Fact Sheet
3
  Mortgagee Letter 2008-43, Pre-Foreclosure Sale Introduction


                                                       4
                                RESULTS OF AUDIT

Finding 1: CitiMortgage Did Not Properly Determine Preforeclosure
Sale Eligibility for 63 Borrowers
Citi did not properly determine that borrowers were eligible to participate in the Program. This
condition occurred because Citi lacked adequate policies and procedures for accepting borrowers
into the Program. As a result, the FHA insurance fund paid out nearly $5 million in improper
claims including lender and borrower incentives.



 Citi Did Not Properly
 Determine Eligibility

              Of 68 loans reviewed, Citi did not properly determine that 63 borrowers were
              eligible to participate in the Program. The following table identifies how often
              each of the various deficiencies occurred in the 63 loans. The total number of
              deficiencies is greater than 68 because some loans had multiple deficiencies.

               Deficiency                                                Number of loans
               Adverse and unavoidable situation                                  44
               Assets available                                                   16
               Surplus income                                                     15
               Unverified income                                                  35
               Unverified expenses                                                63
               Unverified imminent default                                        16
               Undocumented owner-occupant exception                               9

              Citi did not document an adverse and unavoidable financial situation leading to
              the default. Section B Mortgagor Qualifications of Mortgagee Letter 2008-43
              states that the Program may be extended to borrowers who are in default as a
              result of an adverse and unavoidable financial situation. According to section B
              of the mortgagee letter, adverse and unavoidable financial situations may include
              but are not limited to loss of job or verifiable income reduction and extensive
              medical expenses. Citi did not verify the financial situations claimed by the
              borrowers; instead, it took the borrowers’ claims without question. In some
              cases, the borrowers’ financial situation was not shown to be unavoidable; in
              other cases, borrowers stated that they wished to sell the home but were not able
              to because it was worth less than the outstanding mortgage amount.

              Citi did not require borrowers with assets to repay the indebtedness through the
              use of a repayment plan. Section D, Financial Analysis, of the mortgagee letter
              requires that the Program not be offered to borrowers who have sufficient


                                               5
personal resources to pay off their mortgage commitment; moreover, borrowers
with assets are required to repay the indebtedness through the use of a payment
plan. In some cases, bank statements provided by the borrowers reflected
significant cash assets; in other cases, borrowers reported significant cash assets
in bank accounts. In one case, tax returns reflected rental properties owned by the
borrower and in another case reflected significant dividend and interest income,
suggesting substantial assets held by the borrower. In no cases were these assets
used to disqualify the borrowers from the Program.

Citi did not require borrowers with surplus income to repay the indebtedness
through the use of a repayment plan. Section D, Financial Analysis, of the
mortgagee letter requires that the Program not be offered to borrowers who have
sufficient personal resources to pay off their mortgage commitment; moreover,
borrowers with surplus income are required to repay the indebtedness through the
use of a payment plan. Surplus income exists when income less expenses results
in a positive residual. In some cases, Citi approved borrowers for participation in
the Program despite their having surplus monthly income according to Citi’s
calculation.

Citi did not always properly verify income amounts used to calculate surplus
income. Section D, Financial Analysis, of the mortgagee letter requires that
lenders independently verify the borrowers’ financial information regardless of
how it is obtained. In its calculation of surplus income, Citi used income amounts
stated by the borrower even if earnings statements provided by the borrower
supported net monthly income in excess of the amount claimed; in some cases,
the excess created surplus income for the borrower.

Citi did not properly verify borrower expense amounts used in the surplus income
calculation. Section D, Financial Analysis, of the mortgagee letter requires that
lenders independently verify the borrowers’ financial information regardless of
how it is obtained. In its calculation of surplus income, Citi used expense
amounts claimed by the borrower without verifying those expenses. In some
cases, the borrower listed additional mortgages or car payments not reflected on
the credit report. Nearly all cases included amounts for utilities, insurance,
medical expenses, car expenses, charitable donations, and other expenses not
verified by Citi. Without verifying these expenses, Citi could not demonstrate
that the borrower’s expenses exceeded their income.

Citi did not document the basis for its determination that the borrowers’ payment
default was imminent in cases in which the borrower was current at the time he or
she was admitted to the Program. Section A, Loan Default of Mortgagee Letter
2008-43 allows lenders to exercise their discretion to accept applications from
borrowers who are current but facing imminent default. Additionally, Mortgagee
Letter 2010-04, Loss Mitigation for Imminent Default, defines an “FHA borrower
facing imminent default” as an FHA borrower who is current or less than 30 days
past due on the mortgage obligation and is experiencing a significant reduction in



                                 6
           income or some other hardship that will prevent him or her from making the next
           required payment on the mortgage during the month in which it is due. The
           borrower must be able to document the cause of the imminent default, and lenders
           should document this decision in its servicing system.

           In many cases, borrowers were current until after being accepted into the Program
           and then defaulted. In some cases, borrowers stated that they would soon default
           on their payments due to retirement or weddings several months in the future or
           because they feared their jobs or compensation would be cut, although they had
           not been notified of such by their employer. In several cases, Citi told borrowers
           that they must be at least 30 days delinquent on their mortgage payments for the
           sale to close. In one of these cases, the borrower explicitly stated that he received
           a housing allowance from his employer and would be able to make his next 2
           months’ payments but missed the next payment, allowing the preforeclosure sale
           to close.

           Citi did not document that approved borrowers were owner-occupants.
           Mortgagee Letter 2008-43 states that the Program is available to borrowers who
           are owner-occupants of a dwelling with an FHA-insured mortgage. The
           mortgagee letter also states that lenders are authorized to grant reasonable
           exceptions to nonoccupant borrowers when it can be demonstrated that the need
           to vacate was related to the cause of default and the subject property was not
           purchased as a rental or used as a rental for more than 18 months before the
           borrower’s acceptance into the Program. In some cases, Citi accepted borrowers
           who indicated that they were not owner-occupants into the Program without
           demonstrating that the borrower’s need to vacate was related to the cause of
           default and that the subject property was not purchased as a rental or used as a
           rental for more than 18 month before the borrower’s acceptance. In some cases,
           the borrowers provided tax returns indicating that their properties were used as a
           rental, and Citi did not document the length of time the property had been rented.



Inadequate Controls


           Citi lacked adequate policies for accepting borrowers into the Program. Instead of
           creating its own supplemental policies and procedures in addition to the mortgagee
           letter, Citi personnel relied on their own interpretation of the mortgagee letter. For
           example, Citi did not have policies or procedures instructing its personnel how to
           analyze and verify borrower income and expenses. In addition, Citi personnel
           believed that FHA was only concerned that preforeclosure sales generate sufficient
           net proceeds to satisfy the requirements set out in the mortgagee letter and was less
           concerned that the other requirements of the mortgagee letter be met.




                                              7
FHA Paid Improper Claims


             The FHA insurance fund paid out more than $4.9 million for these 63 improper
             claims including borrower and lender incentives. The Program allows borrowers
             who successfully sell to a third party within the required time to receive a cash
             incentive of up to $1,000. Lenders also receive a $1,000 incentive for
             successfully avoiding the foreclosure and complying with all the requirements of
             the mortgagee letter. By following procedures and timeframes included in the
             mortgagee letter, a lender may submit an FHA insurance claim and be
             compensated for the difference between the sale proceeds and the amount owed
             on the mortgage.


Conclusion


             Regulations at 24 CFR (Code of Federal Regulations) 203.370 provide that HUD
             will pay FHA insurance benefits to lenders for preforeclosure sales that are
             conducted in accordance with all regulations and procedures applicable to the
             Program. Because Citi did not appropriately verify borrowers’ financial
             information, it did not comply with the applicable regulations and procedures and,
             therefore, was not eligible to apply for FHA insurance benefits.


Recommendations

             We recommend that the Assistant Secretary for Housing – Federal Housing
             Commissioner require Citi to

             1A. Reimburse HUD for the 63 improper claims totaling $4,942,822.

             1B. Develop and implement policies and procedures to ensure that Citi properly
                 determines the eligibility of borrowers to participate in the Program.




                                              8
                          SCOPE AND METHODOLOGY

To accomplish our objective, we

   Interviewed HUD and Citi staff;
   Reviewed Federal regulations, HUD handbooks, and mortgagee letters;
   Reviewed Citi policies and procedures;
   Reviewed Citi preforeclosure sale case files; and
   Reviewed Citi quality control reports

In calendar year 2010, Citi closed 1,884 preforeclosure sales, resulting in claims totaling more than
$146 million. Of the total preforeclosure sales, there were 135 sales that closed after the borrower
had missed three or fewer payments. To select our sample of 68 loans resulting in claims totaling
more than $5.3 million, we initially sorted the 135 sales that closed after the borrowers had missed
three of fewer payments by original loan closing date and selected every thirteenth sale and an
additional 2 that were denoted as occupied by a renter. We later chose another 56 sales by selecting

   All sales that resulted in claims of $55,000 or greater and
   All borrowers with assets of $25,000 or greater at the time of originating the original loan and
    resulting in claims of $45,000 or greater.

We used reports obtained from HUD’s NeighborhoodWatch Early Warning System and Single
Family Data Warehouse database as background information for our review. Specifically, we used
the reports to identify preforeclosure sales that closed during calendar year 2010 and the associated
claim amounts. However, we did not rely on these data for our conclusions. All conclusions were
based on additional review performed during the audit.

We reviewed Citi preforeclosure sale case files to evaluate whether Citi verified that the borrower

   Suffered an adverse and unavoidable financial hardship,
   Did not have surplus assets,
   Did not have surplus income,
   Accurately stated income,
   Accurately stated expenses,
   Was in danger of imminent default if applicable,
   Was the owner-occupant of the subject property,D
   Did not have another FHA-insured mortgage, and
   Was more than 30 days delinquent when the short sale closed
   And that (1) the mortgage payoff amount exceeded the “as-is” fair market value of the home, (2)
    the home was listed for sale at or near the appraised “as-is” fair market value, and (3) the sale
    generated the minimum net sales proceeds required by the Program.




                                                  9
For the purposes of our review, borrowers were considered to have surplus assets when they had
more than $5,000 in cash and surplus income when income less expenses resulted in a positive
residual greater than zero.

We performed our audit work between February and July 2011 at Citi’s office at 1000 Technology
Drive in O’Fallon, MO. Our audit generally covered the period January 1 through December 31,
2010.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               10
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls
               We determined that the following internal controls were relevant to our audit
               objective:

                     Controls over reviewing borrower qualifications to participate in the
                      Program.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.


 Significant Deficiency


               Based on our review, we believe that the following item is a significant deficiency:

                     Citi did not have adequate policies and procedures in place to ensure that it
                      properly determined borrower eligibility to participate in the Program.




                                                 11
                                     APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                 Recommendation          Ineligible 1/
                        number

                                1A          $4,942,822


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.




                                            12
Appendix B
     AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         13
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                         14
Ref to OIG Evaluation   Auditee Comments




Comment 5




                         15
Ref to OIG Evaluation   Auditee Comments




Comment 6




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 8




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 9




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 10




                         19
Ref to OIG Evaluation   Auditee Comments


Comment 11




                         20
Comment 12
Sample 1




Sample 2




Sample 3




Sample 4




             21
Sample 5




Sample 6




Sample 7




           22
Sample 8




Sample 9




Sample 10




Sample 11


Sample 12




Sample 13




            23
Sample 14




Sample 15




Sample 16




Sample 17



Sample 18


Sample 19



Sample 20




            24
Sample 21




Sample 22




Sample 23




Sample 24




Sample 25




            25
Sample 26




Sample 27


Sample 28




Sample 29




Sample 30




            26
Sample 31




Sample 32




Sample 33




Sample 34




Sample 35




            27
Sample 36




Sample 37




Sample 38




Sample 39




            28
Sample 40




Sample 41




Sample 42




Sample 43




            29
Sample 44




Sample 45




Sample 46




Sample 47


Sample 48




Sample 49




            30
Sample 50




Sample 51




Sample 52




Sample 53




            31
Sample 54




Sample 55




Sample 56




            32
Sample 57




Sample 58




Sample 59




            33
Sample 60




Sample 61




Sample 62




            34
Sample 63




Sample 64

Sample 65




Sample 66




            35
Sample 67




Sample 68




            36
                         OIG Evaluation of Auditee Comments

Comment 1   We do not agree that “The findings described in the HUD OIG report are based
            on the auditors' interpretation of the guidelines outlined for the PFS Program,
            which are not aligned with CMI's interpretation of these guidelines;” rather, we
            believe Citi is misinterpreting the guidelines as clearly laid out by the mortgagee
            letter. The changes recommended in the audit report would ensure that Citi is
            complying with the program criteria. Borrowers that would not qualify under the
            program criteria, by definition, do not qualify for help under the Preforeclosure
            Sales Program. Citi has indicated the 7 exceptions that it believes to have merit
            relate to 6 sample items: 14, 19, 21, 22, 26, and 35. See Appendix D for the
            details of each sample item.

Comment 2   While the mortgagee letter does not strictly define adverse and unavoidable
            situation or contain an exhaustive list, it does include "verifiable income reduction
            and extensive medical expenses." Indeed, our finding is that ”Citi did not verify
            the financial situation claimed by the borrowers." We also believe that reasonable
            interpretation of “adverse and unavoidable” should preclude some of the
            hardships in the sample under review. Additionally, the mortgagee letter does not
            contain a provision for “anticipated future hardships and circumstances.” Finally,
            the financial information input into Citi’s DRI system for use in the analysis of
            the borrower’s financial situation did not always agree with supporting
            documentation such as pay stubs and bank statements.

            Citi did not verify that the adverse and unavoidable financial situation claimed by
            the borrower actually happened; we were not provided documentation evidencing
            the borrower’s stated financial hardship. For example, in cases where the
            borrower claimed that they were going to be laid off, the loan files did not include
            documentation from the employer informing the borrower that they would be laid
            off. In cases where the borrower claimed that excessive medical bills were
            causing them to default on their mortgage, the files did not contain cancelled
            checks or other documentation which substantiated those bills. Finally, cases
            where the borrower claimed that their hardship was that they simply wished to
            sell their home do not fit a reasonable interpretation of "adverse and
            unavoidable;" moreover, Mortgagee Letter 2008-43 specifically states the
            program shall not be made available to mortgagors who have abandoned their
            mortgage obligation despite their continued ability to pay.

            Citi stated that its process and procedures include validating a number of items
            used to review the borrowers’ stated situation. However, because Citi did not
            have adequate policies and procedures over qualifying borrowers for participation
            in the program, the process of validation is open to interpretation by each
            individual negotiator. Consistency cannot be assured without a standardized
            process for all preforeclosure sale negotiators.




                                             37
Comment 3   While Mortgagee Letter 2008-43 does not define the term “imminent default,”
            Mortgagee Letter 2010-04 does define an FHA borrower in danger of imminent
            default as “an FHA borrower who is current or less than 30 days past due on the
            mortgage obligation and is experiencing a significant reduction in income or some
            other hardship that will prevent him or her from making the next required
            payment on the mortgage during the month that it is due. The borrower must be
            able to document the cause of the imminent default.”

Comment 4   We received no documentation showing that Citi negotiators considered assets
            identified by the borrowers’ claims, tax returns or bank statements; moreover, Citi
            did not provide us with justification for disregarding the assets.

            Because Citi lacked adequate policies and procedures over qualifying borrowers
            for participation in the program, the documentation required to perform a
            satisfactory analysis and identify potential assets held by the borrower is at the
            discretion of each individual preforeclosure sale negotiator. Many cases that we
            reviewed did not contain bank statements or tax returns; therefore, it is possible
            for a borrower to withhold information about assets available by not providing
            documentation. In the examples we provided, the case contained no documented
            justification or explanation from the borrower regarding why cash or investment
            assets could not be liquidated to support the mortgage obligation.

Comment 5   We identified several instances where Citi’s DRI system reported positive
            monthly residual yet the borrower was still approved. We were not provided any
            documentation supporting Citi negotiators’ justification for approving borrowers
            with positive monthly residual.

Comment 6   We identified several instances where the borrowers claimed income that was
            different than income supported by the borrowers’ pay stubs. While Citi stated
            that its processes and procedures require an explanation of any such variance from
            the borrower, we were not provided any. In cases where the borrowers' claimed
            income differed from supporting documentation, Citi negotiators used amounts
            claimed by the borrower instead of amounts supported by documents in the file.
            Additionally, many cases reviewed did not contain bank statements or tax returns.
            Identifying income omitted by the borrower on their Work Out Package is made
            difficult, if not impossible, by the absence of bank statements and tax returns.

Comment 7   We identified several instances where credit bureau items claimed by the
            borrower exceeded what was supported by the credit report; in such cases Citi
            negotiators completed their analysis using the amount claimed by the borrower
            rather than the amount supported by the credit report. Citi did not provide us with
            justification for using the higher amounts. Many cases did not contain bank
            statements making verifying items not shown on the credit report difficult, if not
            impossible. Finally, because Citi did not have adequate policies and procedures
            over the approval process, the reasonableness of expenses is subject to each
            individual negotiator’s definition; therefore, consistency in application cannot be
            assured.


                                            38
              It should also be noted that before we suggested a reasonableness test, Citi’s
              stated position was that expenses not reflected on the credit report are not possible
              to verify and were therefore included in the financial analysis regardless of the
              amount claimed by the borrower. Interviews with Citi personnel did not reveal a
              reasonableness test in practice by Citi negotiators. Because Citi lacked adequate
              policies and procedures over qualifying borrowers for participation in the
              program, the documentation required to perform a satisfactory analysis and
              identify and verify borrower expenses is at the discretion of each individual
              preforeclosure sale negotiator.

Comment 8     In 6 of these 16 cases Citi accepted borrowers into the program, according to the
              dates on signed Approval to Participate forms, before ever missing a payment.
              These borrowers were admitted to the program under the premise that default was
              imminent, yet remained current on their mortgages until their short sale was ready
              to close. This does not meet the definition of imminent default laid out in
              Mortgage Letter 2010-04. Borrowers whose adverse and unavoidable financial
              situation was a future retirement or fear of furlough/layoff would therefore not
              meet the definition of imminent default as defined by FHA. Of the 16 cases cited,
              6 had positive residual income; additionally, 4 more had assets or investment
              income. The remaining 6 cases claimed expenses and hardships which Citi did not
              verify to be true.

Comment 9     We did not receive any documentation indicating that Citi verified that the homes
              were not used as a rental in the 18 months prior to approval. In cases where the
              borrowers’ tax returns indicated rental income, Citi did not document the
              investigation of the rental income to determine that the FHA insured mortgage
              property was not being rented.

Comment 10 During the course of the audit we asked Citi for internal policies and procedures
           governing qualifying borrowers for participation and were told that Citi deferred
           to the mortgage letter for guidance. We recommend that Citi work to develop and
           implement official standardized procedures for all personnel responsible for
           approving borrowers for participation in the program to follow. Citi should work
           to ensure that all information used to analyze a borrower’s financial situation is
           accurate and supported by source documentation.

Comment 11 The policies listed are not sufficient to address the specific concerns raised in the
           audit or fulfill our recommendations. Citi will have the opportunity to resolve the
           recommendations during the audit resolution process.

Comment 12 The final column of Citi's response, "Income and Exp Summary as in DRI,"
           generally differs from what was presented to us during our audit. See Appendix
           D for case narratives analyzing income and expense figures that were presented to
           us during our audit.




                                               39
Sample 1
1. Hardship - The borrower did not claim to be unable to continue making
payments; the borrower stated that they were not behind on their payments but
would like to sell their home but was unable to because the market value at the
time was less than the borrower owed. Citi’s own documentation shows hardship
reason as "unable to sell." Citi states that the borrower’s financial analysis
revealed a negative surplus income of $531/month using income of $3784 and
expenses of $4315; however, paystubs in the file support income of $4384. Using
these figures, the borrower had surplus income of $69.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income of $4384, not $3629
originally used by Citi in its analysis.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The borrower’s expenses also included an
auto loan not reflected on the credit report or otherwise supported.
4. Imminent Default - see discussion of Hardship above.

Sample 2
1. Hardship - The borrower’s stated hardship was that the family relocated and
then her husband, who is not on the mortgage obligation, lost his job. The
borrowers on the mortgage obligation appear to be a father and daughter who
were both employed at the time of the preforeclosure sale application.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The borrowers’ expenses also included
credit cards and student loans which exceeded the credit report by $656/month.
4. Assets - Mortgagee Letter 2008-43 requires that borrowers with assets be
required to re-pay the indebtedness through the use of a repayment plan. The
letter does not stipulate that the assets must be sufficient to satisfy the entire
mortgage. Citi calculated negative monthly surplus income of $85; the borrower's
cash assets would cover this monthly shortfall for more than 15 years.
5. Owner Occupant - Citi could not demonstrate the that home was not rented for
more than 18 months prior to the preforeclosure sale.

Sample 3
1. Hardship – We did not take issue with the borrowers’ financial hardship.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.
4. Assets - Mortgagee Letter 2008-43 requires that borrowers with assets be
required to re-pay the indebtedness through the use of a repayment plan. The




                                40
letter does not stipulate that the assets must be sufficient to satisfy the entire
mortgage.
On November 9, 2009 the borrower stated he could pay the mortgage "for the
next two months. I have just paid November’s today." The short sale closed
01/15/2010; therefore, the borrower did not make the December payment despite
explicitly stating that he was able to do so. The borrowers abandoned their
mortgage commitment despite a continued ability to pay.

Sample 4
1. Expenses - Citi was unable to provide a credit report for the borrower and did
not independently verify the borrowers’ claimed expenses. Citi did not
demonstrate the basis on which it determined the borrower’s expenses were
reasonable.

Sample 5
1. Hardship - Citi was not able to provide documentation verifying that the
borrower’s job relocation was involuntary.
2. Income - Borrower assertions in the file support monthly net income different
than the amount Citi used in its calculation of monthly surplus. Citi did not
document independent verification of the borrower’s income.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 6
1. Hardship - The borrower’s stated hardship is basically that she moved out of
the house and into another home with her spouse and now she can’t sell the
subject property; the borrower does not claim to have experienced an adverse and
unavoidable financial situation. While Citi states its obligation is to acknowledge
the borrower's financial hardship, HUD also requires the lender to obtain
documentation substantiating a reduction in income, an increase in living expense,
or the need to vacate the property.
2. Income - Citi did not use the collected income documents appropriately; in the
file, the borrower asserts bonus income of $3000/month. The paystubs show year
to date amounts validating this additional income. However, the bonus income
was not used by Citi in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
4. Owner Occupant - Citi could not demonstrate the that home was not rented for
more than 18 months prior to the preforeclosure sale; the borrower claims to not
have lived in the home for three years and claimed to have rented it for at least a
year.

Sample 7
1. Hardship - Coborrower’s unemployment was not verified by unemployment
benefits statement, etc; borrower’s future unemployment is not verified by the 90




                                41
day notification she claimed to have received. More than 90 days passed between
the borrower’s hardship letter and the preforeclosure sale closing.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its original calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
4. Imminent Default - Citi did not document verification that the borrower’s
stated reason for imminent default actually occurred.

Sample 8
1.Hardship – We did not take issue with the borrower’s reported hardship;
however, the hardship did not cause the borrower to default on the mortgage as
evidenced by the analysis of monthly surplus income.
2. Income - The file contained income documentation on only one of the two
borrowers named on the mortgage obligation; thus, the second borrower’s income
was not verified. Using the single borrower’s financial income information
yielded monthly surplus income.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 9
Income - The original analysis provided by Citi indicated Citi used an income
amount which was less than the amount supported by income documentation; Citi
has now adjusted its income figures to reflect the amount supported by the
documentation.
Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 10
1. Hardship - Citi was not able to provide documentation verifying that the
borrower’s stated financial hardships actually occurred. The borrower claimed to
have had reduced income, medical expenses, daycare expenses, child support
expenses, and provided financial assistance to his father; however, none of these
expenses or events are substantiated by any documents or other proof.
2. Surplus Income - Citi’s original analysis as provided indicated that the
borrower had monthly surplus income of $225; Citi has now adjusted the analysis
to reflect negative surplus. Citi approved the borrower for participation despite its
own documentation showing the borrower had a positive monthly surplus.
3. Income - Citi’s original analysis appears to have been based on the borrower’s
gross income.
4. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
5. Assets - The borrower indicated, on his application to participate in the
preforeclosure sale program, Cash, Checking and or Savings of $25,000. Citi did




                                 42
not consider these assets for use in a repayment plan as required by the mortgagee
letter.

Sample 11
Borrower qualification not disputed.

Sample 12
1. Assets - Mortgagee letter 2008-43 requires that mortgagees with surplus assets
repay the indebtedness through the use of a repayment plan. The letter does not
stipulate that the assets must be sufficient to satisfy the entire mortgage.
2. Income - Income documents support income greater than the amount used by
Citi in its original calculation of surplus income. Citi has now adjusted its income
figures.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
4. See assets and expenses above.

Sample 13
1. Hardship - Citi was not able to provide documentation verifying that the
borrower’s stated financial hardships actually occurred.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The borrower’s expenses also included
credit cards and other loans which exceeded the credit report by $551/month.

Sample 14
1. Hardship - Citi did not document an adverse and unavoidable financial
situation suffered by the borrower; Citi did not demonstrate that the borrower’s
relocation was involuntary.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. Per interviews with Citi personnel there
were no internal policies over borrower qualification in place.
3. Mortgagee letter 2010-04 defines an FHA borrower in danger of imminent
default as someone unable to make the next required payment on the mortgage
during the month that it is due. Because the borrower had cash assets of $30,015
on hand they could afford to make the next month’s payment during the month
that it was due; thus, default was not imminent.
4. Assets - Mortgagee letter 2008-43 states mortgagors with surplus income
and/or other assets are required to re-pay the indebtedness through the use of a
repayment plan. The letter does not stipulate that the assets must be sufficient to
satisfy the entire mortgage. Also, because the borrower had cash assets on hand
they could afford to make the next month’s payment during the month that it was
due; thus, default was not imminent.

Sample 15
1. Hardship - The family death occurred almost a year before the loan was
originated and two years before the default, moreover, the deceased person



                                 43
discussed was neither of the borrowers named on the mortgage obligation. Citi
did not document verification of the borrowers’ claimed hardships.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The mortgagee letter requires mortgagees
to verify the borrower’s financial information
"The account holder is not to make the April payment" is a direct quote from
Citi’s internal documentation included in the loan file.

Sample 16
1. Hardship - Stated hardship reason was "income curtail;" comparative income
information would be required to substantiate a decrease in income. Citi did not
document comparative information to verify the decrease in income.
2. Income - Income documents support income greater than the amount used by
Citi in its original calculation of surplus income.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The mortgagee letter requires mortgagees
to verify the borrower’s financial information.
4. Citi did not document a hardship preventing the borrower from making the next
required payment on the mortgage during the month that it was due. Citi did not
provide tax returns during review of the loan to evidence decreasing receivables.

Sample 17
1. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 18
1. Income - Income documents support income significantly greater than the
amount used by Citi in its original calculation of surplus income. The borrower
reported negative cash flow of $48.95 per month; Citi calculated negative cash
flow of $863.84 per month. We believe this is a material difference and it is
unreasonable for Citi to make such adjustments to borrowers’ qualifying
information without justification.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 19
1. Income – We were also able to document direct deposits for social security and
pension benefits of $4952; adding the $1075 rental income to other income results
in total income of $6027. The most recent tax return included in the file (2008)
indicates rental income of $24,475 but documentation supporting more recent
rental income is not documented in the file. Additional documentation would be
required to verify rental income for inclusion in the calculation of the surplus
income.
2. Expenses - The borrower’s monthly expenses included amounts of $11,368
utilities and $10,800 total food expense while the borrower indicated there was 1
dependent under the age of 18. These amounts would require supporting



                                44
documentation. Customer statements on workout package are not sufficient for
independent verification.

Sample 20
1. Hardship - The borrower’s stated hardships were unverified by Citi;
comparative tax returns or paystubs reflecting a pay reduction were not
documented. The borrower’s sister is not a coborrower on the mortgage and thus
her financial contribution would not affect the borrower’s financial analysis.
Additionally, the claim that the sister provided income to the borrower was not
verified.
2. Expenses - Mortgagee Letter 2008-43 requires that borrower financial
information be independently verified. The borrower’s expenses of family
support overseas, school MBA, and medical expenses, totaling $1719 were not
verified by supporting documentation. Additionally, the borrower’s stated
expenses for credit cards (used by Citi in its calculation of surplus income) are
also overstated by $311 compared to the amount substantiated by the credit
report, and Citi include the mortgage payment twice in the total expenses.

Sample 21
1. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 22
1. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 23
1. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The mortgagee letter requires mortgagees
to verify the borrower’s financial information.
2. Income - The file contained no documentation supporting the borrower’s
income. The borrower completed a financial statement stating monthly income of
$3600; Citi used $2089.74 in its calculation.

Sample 24
1. Hardship - The borrower’s stated hardships were unverified by Citi.
2. Income - The file did not include borrower paystubs. Citi did not document
verification of unemployment.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The mortgagee letter requires mortgagees
to verify the borrower’s financial information.

Sample 25
Borrower qualification not disputed.




                                45
Sample 26
1. Hardship - The borrower claimed to no longer live at the home and to have a
second mortgage payment; however, the borrower’s credit report did not list
another mortgage. The borrower also asserted that they wished to get married and
have another child; however, the borrower did not show, and Citi did not verify,
an adverse and unavoidable financial hardship suffered by the borrower. While
Citi states its obligation is to acknowledge the borrower's financial hardship,
HUD also requires the lender to obtain documentation substantiating a reduction
in income, an increase in living expense, or the need to vacate the property.
2. Assets - The most recent bank balance included in the file indicated the
borrower had cash equivalent to more than 6 mortgage payments on hand.
Mortgagee letter 2008-43 states mortgagors with surplus income and/or other
assets are required to re-pay the indebtedness through the use of a repayment plan.
The letter does not stipulate that the assets must be sufficient to satisfy the entire
mortgage. Also, because the borrower had cash assets on hand they could afford
to make the next month’s payment during the month that it was due; thus, default
was not imminent.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The mortgagee letter requires mortgagees
to verify the borrower’s financial information.
1. Occupancy - Citi agrees with fail determination.

Sample 27
Borrower qualification not disputed.

Sample 28
1. Hardship - The borrower provided a statement claiming extreme loss of
income. Citi did not independently verify the claim made by the borrower.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. Citi should have determined if there was
an additional income source, given that the borrower was current on his payments
and the expenses shown on his credit report greatly exceeded his reported income.

Sample 29
1. Hardship - The borrower provided a statement claiming excessive obligations.
Citi did not independently verify the claim made by the borrower.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus. Earnings statements were
not included for the coborrower. The justification for the exclusion of the
coborrowers income was not documented.




                                 46
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable. The borrower claimed an auto loan and
credit card obligations that were not reported on the credit report.

Sample 30
1. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The borrower claimed credit card
obligations that exceeded the amount reported on the credit report by $446.
2. Assets - We did not cite Citi for assets on this case.

Sample 31
1. Hardship - The borrower provided a statement claiming he is planning to get
married and will be taking on an additional mortgage. Citi did not independently
verify the claims made by the borrower. While Citi states its obligation is to
acknowledge the borrower's financial hardship, HUD also requires the lender to
obtain documentation substantiating a reduction in income, an increase in living
expense, or the need to vacate the property. Because the borrower is able to meet
his current financial obligations and future expenses were not verified, it was not
established that the events would have prevented the borrower from making the
next required payment in the month that it was due. The borrower was not facing
imminent default at the time of acceptance into the program or when the property
was sold.
2. Assets - Per tax returns for 2008 and 2009 included in the file, the most recent
of which was filed less than three months before the borrower was accepted into
the PFS program, the borrower received rental income from at least three rental
properties in each year. Per mortgagee letter 2008-43 borrowers with assets are
required to re-pay the indebtedness through the use of a repayment plan.
3. Surplus – The original calculation of surplus income indicates that the borrower
had surplus monthly income. Using the income supported by the paystubs and all
claimed expenses, the borrower had surplus income. The letter does not stipulate
that surplus income must be sufficient to resolve the borrower's entire financial
hardship.
4. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
5. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
6. Imminent Default – see discussions of Hardship above.

Sample 32
1. Hardship - Because the apparent hardship was projected into the future it was
not possible for Citi to verify that the borrower did in fact experience a reduction
in income. The borrower provided a statement claiming possible reduction in
income and a financial hardship due to her parents’ medical expenses. Citi did
not independently verify the claims made by the borrower.




                                 47
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable
3. Imminent Default – see discussions of Hardship above.

Sample 33
1. Hardship - Citi did not independently verify the claims made by the borrower.
The borrower provided a statement claiming he is planning to get married and his
current residence is not acceptable; the borrower did not declare when he was
getting married and the marriage was not verified. The borrower also claimed
that being laid off was only a matter of time for him but did not provide any
documentation to substantiate this.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable, and did not independently verify them to
ensure they were accurately reported.
3. Imminent Default – Because the borrower has been meeting his current
financial obligations and future expenses were not verified, it was not established
that the events would have prevented the borrower from making the next required
payment in the month that it was due.

Sample 34
1. Hardship - The borrowers provided a statement claiming the need to care for
elderly parents. Citi did not independently verify the claim made by the
borrowers.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable. The borrowers claimed a loan obligation
that was not reported on the credit report.

Sample 35
1. Hardship - The borrower provided a statement claiming the need to care for
elderly parents. The coborrower did not claim a financial hardship. Citi did not
independently verify the claims made by the borrower. While Citi states its
obligation is to acknowledge the borrower's financial hardship, HUD also requires
the lender to obtain documentation substantiating a reduction in income, an
increase in living expense, or the need to vacate the property.
2. Surplus – Citi agreed in their response that the borrowers had surplus income.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable. Further, Citi completed its analysis using
all claimed monthly expenses, without reconciling these items to the credit report,
on which auto loans and credit cards were significantly lower.

Sample 36
We did not agree that customers qualified.




                                48
1. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable

Sample 37
1. Hardship - The borrower provided a statement claiming flood damage to the
property and unemployment of spouse; however, the spouse was not a coborrower
on the loan and Citi did not independently verify the claims made by the
borrower. While Citi states its obligation is to acknowledge the borrower's
financial hardship, HUD also requires the lender to obtain documentation
substantiating a reduction in income, an increase in living expense, or the need to
vacate the property.
2. Surplus – Citi confirmed in their response that the borrower had surplus income
but commented that the surplus was not sufficient.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 38
1. Hardship - The borrower provided a statement claiming future retirement;
however, Citi did not independently verify the claim made by the borrower.
While Citi states its obligation is to acknowledge the borrower's financial
hardship, HUD also requires the lender to obtain documentation substantiating a
reduction in income, an increase in living expense, or the need to vacate the
property. Because the apparent hardship was projected into the future, it was not
possible for Citi to verify that the borrower did in fact retire. Additionally,
because retirement would not prevent the borrower from making the next required
payment in the month that is was due the borrower was not facing imminent
default, as defined by Mortgagee Letter 2010-04, at the time of acceptance into
the program or when the property was sold.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
4. Imminent Default – see discussions of Hardship above.

Sample 39
1. Hardship – On the original documents provided by Citi, the hardship reason
was listed as seller has two homes. This claim was not supported by the credit
report. In its response, Citi said the hardship is negative residual income. While
Citi states its obligation is to acknowledge the borrower's financial hardship,
HUD also requires the lender to obtain documentation substantiating a reduction
in income, an increase in living expense, or the need to vacate the property. See
income section for additional explanation.
2. Assets - The borrower had $13,545 in her bank accounts. Per Mortgagee Letter
2008-43, borrowers with surplus income and/or other assets are required to re-pay
the indebtedness through the use of a repayment plan.



                                49
3. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus. The income reported in
DRI uses the mid-month payment to the borrower as monthly income. The
earnings statements provided indicate the borrower was paid twice per month.
4. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The borrower claimed loan obligations
that were not reported on the credit report.

Sample 40
1. Hardship - The borrower provided a statement claiming current and future
family medical expenses and possible reduction in income. Citi did not
independently verify the claims made by the borrower. Because the borrower is
able to meet his current financial obligations and possible future expenses would
not prevent the borrower from making the next required payment in the month
that it was due, the borrower was not facing imminent default.
2. Assets - The borrower had $28,000 in his checking and savings accounts,
which disqualified him from the preforeclosure sale program. The letter does not
stipulate that the assets must be sufficient to satisfy the entire mortgage.
3. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
4. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
5. Imminent Default – see discussions of Hardship above.
6. Owner Occupant - The borrower was not an owner occupant of the property;
according to the borrower he had been renting the property. Citi did not
document independent verification that the sale qualified for an exemption from
the owner occupant rule.

Sample 41
1. Assets - A bank statement in the file indicate the borrower is a co-holder on a
Bank of America money market account with a balance of $18,034; Mortgagee
Letter 2008-43 requires borrowers with surplus income and/or other assets to re-
pay the indebtedness through the use of a repayment plan. The letter does not
stipulate that the assets must be sufficient to satisfy the entire mortgage
obligation. If, as Citi claims, the borrowers had negative surplus income of
$229/month, the assets would be enough to bridge their monthly needs for many
years.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable

Sample 42
1. Surplus/Hardship – We cited surplus income, Citi directed its response to
hardship. The original calculation of surplus income provided by Citi indicates
that the borrower had surplus monthly income.



                                 50
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The borrower’s expenses also included an
auto loan not reflected on the credit report or otherwise supported.

Sample 43
1. Hardship - The borrower provided a statement claiming future retirement;
however, Citi did not independently verify the claim made by the borrower.
Because retirement would not prevent the borrower from making the next
required payment in the month that is was due, the borrower was not facing
imminent default as defined by Mortgagee Letter 2010-04. Because the apparent
hardship was projected into the future it was not possible for Citi to verify that the
borrower did in fact retire.
2. Surplus – The original calculation of surplus income using borrower supplied
information indicates that the borrower had surplus monthly income. The letter
does not stipulate that surplus income must be sufficient to resolve the borrower's
entire financial hardship.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
4. Imminent Default – see discussions of Hardship above.

Sample 44
1. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 45
1. Hardship - Citi indicated the borrowers’ hardship was income curtailment;
however, the borrower neither claimed nor provided evidence of an income
reduction. The borrower provided a statement claiming a hardship of negative
equity in their home and wanting to be out from underneath the home. Because
this does not meet the definition of an adverse and unavoidable financial event the
sale should not have been approved.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable
3. Owner Occupant - The borrowers were not owner occupants after moving to
another residence 1 mile from the subject property. According to the borrower
supplied tax return, the property was rented beginning 1/1/2009. Citi did not
document verification that the sale qualified for an exemption from the owner
occupant rule.




                                  51
Sample 46
1. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus. Earnings statements were
not included for both borrowers; income from only one borrower was used in
Citi’s calculation of surplus income. The reason for the exclusion of the
coborrower’s income was not documented.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.

Sample 47
Borrower qualification not disputed.

Sample 48
1. Hardship - The borrower provided a statement claiming future unemployment;
The borrower claimed employment would be terminated in July. The property
was sold in September but Citi did not document verification of the job loss.
2. Surplus Income – The original calculation of surplus income provided by Citi
indicates that the borrower had surplus monthly income; thus we cited Citi for
accepting the borrower into the program with surplus income.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.
4. Imminent Default – see discussions of Hardship above.

Sample 49
1. Hardship - The borrowers provided a statement claiming a hardship of negative
equity in their home. Because this does not meet the definition of an adverse and
unavoidable financial event the sale should not have been approved.
2. Assets - The borrowers had $13,695 in their bank account. Mortgagee Letter
2008-43 requires borrowers with surplus income and/or other assets to re-pay the
indebtedness through the use of a repayment plan. The letter does not stipulate
that the assets must be sufficient to satisfy the entire mortgage.
3. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus. Citi used the borrower-
supplied biweekly net income amounts as monthly amounts.
4. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.

Sample 50
1. Hardship - The borrower provided a statement claiming a hardship that she and
her fiancée separated; however, NeighborhoodWatch and all documentation
provided by Citi indicate that the fiancée was not a coborrower on the loan. Citi
did not independently verify the claims made by the borrower. While Citi states
its obligation is to acknowledge the borrower's financial hardship, HUD also




                                52
requires the lender to obtain documentation substantiating a reduction in income,
an increase in living expense, or the need to vacate the property.
2. Surplus - The original calculation of surplus income provided by Citi indicates
that the borrower had surplus monthly income. The letter does not stipulate that
surplus income must be sufficient to satisfy the borrower's entire financial
hardship. "Income and Exp Summary as in DRI" amounts differ from what was
presented to us during our review. Citi added borrower claimed expenses and
credit bureau expenses resulting in double counting of the credit bureau expenses.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 51
1. Hardship - The borrower provided a statement claiming a hardship of
relocation for education and her previous employment had been terminated;
however it cannot be determined from the information provided if this was a
voluntary move and therefore avoidable. Finally, Citi did not independently
verify the claims made by the borrower.
2. Assets - The borrower had $7,986 in her bank accounts. Mortgagee Letter
2008-43 requires borrowers with surplus income and/or other assets to re-pay the
indebtedness through the use of a repayment plan. The letter does not stipulate
that the assets must be sufficient to satisfy the entire mortgage.
3. Surplus - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus. The original calculation of
surplus income provided by Citi indicates that the borrower had surplus monthly
income.
4. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 52
1. Hardship - The borrower claimed increased expenses since the purchase of her
home; however, Citi did not independently verify the claims made by the
borrower.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 53
1. Hardship - Citi did not independently verify the claims made by the borrower
or the reduction in income. The borrower claims her son has experienced health
and legal issues that have added to her financial burden. Citi classified the
hardship reason as "Income Curtail" on the Workout Solution worksheet. While
Citi states its obligation is to acknowledge the borrower's financial hardship,
HUD also requires the lender to obtain documentation substantiating a reduction
in income, an increase in living expense, or the need to vacate the property.
2. Surplus - The original calculation of surplus income provided by Citi indicated
that the borrower had surplus monthly income. The letter does not stipulate that



                                53
surplus income must be sufficient to satisfy the borrower's entire financial
hardship. We were able to verify the borrower reported income by averaging the
reported year to date income. In the hardship letter, the borrower stated that she
ran a business, making her salary and earnings draws somewhat variable.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
4. Imminent Default – see discussions of Hardship and Surplus above.

Sample 54
1. Assets - The borrowers’ bank statement showed a balance of $8,056.
Mortgagee Letter 2008-43 requires borrowers with assets to re-pay the
indebtedness through the use of a repayment plan. The letter does not stipulate
that the assets must be sufficient to satisfy the entire mortgage. The funds
available would allow the borrower to cover the negative residual income of $19
per month for the life of the loan.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.

Sample 55
1. Hardship - Citi did not document independent verification of the adverse and
unavoidable financial situations claimed by the borrower. The borrower provided
a statement claiming employment relocation and future unemployment of spouse.
The file does not contain documentation verifying that the employment relocation
or unemployment actually occurred. While Citi states its obligation is to
acknowledge the borrower's financial hardship, HUD also requires the lender to
obtain documentation substantiating a reduction in income, an increase in living
expense, or the need to vacate the property.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus. NOTE - "Income and Exp
Summary as in DRI" amounts differ from what was presented during our review.
The net income reported in DRI reports the coborrower’s income and omits the
borrower’s income.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable. Citi did not use the credit report
appropriately; the borrowers’ claimed expenses also included $581 per month in
auto loans not reported on the borrowers’ credit report.
4. Imminent Default – see discussion of Hardship above.

Sample 56
1. Hardship - Citi did not independently verify the claims made by the borrower.
The borrower provided a statement claiming employment relocation and




                                54
unemployment of spouse. It cannot be determined from the information provided
if this was a voluntary move and therefore avoidable.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 57
1. Surplus - During the review Citi provided a calculation of the borrowers’
income and expenses that determined the borrowers’ had combined positive
residual monthly income. The letter does not stipulate that the surplus income
must be sufficient to satisfy the borrower's entire financial hardship. The
borrower-reported income was verified using the borrower-supplied earnings
statements. Later, Citi presented new information to us as part of their response
to this item. The "Income and Exp Summary as in DRI" presented as a response
differs from what was presented to us during our review. Citi calculated one of
the borrower’s income by dividing the YTD net earnings by 9.55 months. The
Regular Earnings reported on the borrower’s Earning Statement YTD is
$27,449.94; dividing the YTD pay by the reported regular rate of $2,115.38
indicates that the borrower has been paid for approximately 13 periods.
Alternatively, 9.55 months is equal to approximately 20 pay periods; therefore,
the borrower appears to have not been employed at the current employer for the
entire year. This discrepancy makes dividing YTD earnings by 9.55 an invalid
method of calculating monthly income. There is no documentation to support the
use of this alternate calculation performed by Citi. Per the mortgagee letter,
borrowers with surplus income and/or other assets are required to re-pay the
indebtedness through the use of a repayment plan.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.

Sample 58
1. Hardship - The borrower claimed inability to keep up with payments due to a
change in jobs and having to move across the state. Citi was not able to provide
documentation verifying that the borrower’s job relocation was involuntary.
While Citi states its obligation is to acknowledge the borrower's financial
hardship, HUD also requires the lender to obtain documentation substantiating a
reduction in income, an increase in living expense, or the need to vacate the
property.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 59
1. Hardship - It is stated in the Workout Solutions Worksheet included in the file
that the borrower’s reason for hardship is excessive obligations. Citi stated the
borrower has a reduction in income; paystubs in the file document steady income.
Citi did not document independent verification of the adverse and unavoidable
financial situation suffered by the borrower. While Citi states its obligation is to
acknowledge the borrower's financial hardship, HUD also requires the lender to



                                 55
obtain documentation substantiating a reduction in income, an increase in living
expense, or the need to vacate the property.
2. Income - Citi did not use the collected income documents appropriately;
income documents in the file support monthly net income different than the
amount Citi used in its calculation of monthly surplus.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.

Sample 60
1. Hardship - The borrowers claim they experienced an adverse and unavoidable
financial situation due to a reduction in income and the birth of a child. The
borrowers claim as a result of the financial situation the family relocated. Citi did
not independently verify the claimed adverse and unavoidable situations. While
Citi states its obligation is to acknowledge the borrower's financial hardship,
HUD also requires the lender to obtain documentation substantiating a reduction
in income, an increase in living expense, or the need to vacate the property.
2. Assets - The borrower had liquid assets of $13,701, almost 12 monthly
mortgage payments, according to bank statements included in the file. Per the
mortgagee letter, borrowers with surplus income and/or other assets are required
to re-pay the indebtedness through the use of a repayment plan. The letter does
not stipulate that the assets must be sufficient to satisfy the entire mortgage.
3. Income - The file contained income documentation on only one of the two
borrowers named on the mortgage obligation; thus, the second borrower’s income
was not verified.
4. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.

Sample 61
1. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. Further, the documented net income was
greater than the expenses claimed; therefore, the borrower appeared able to
continue to support the mortgage and did not qualify for a preforeclosure sale.

Sample 62
1. Hardship - The borrowers claim they were not able to continue to make two
mortgage payments. A second mortgage payment was not listed on the
borrowers’ credit report and was not otherwise verified by supporting
documentation in the file.
2. Surplus - Citi agrees in their response that the borrowers had surplus income.
The letter does not stipulate that surplus income must be sufficient to satisfy the
borrower’s entire financial hardship.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable. The borrowers’ claimed expenses included
a second mortgage that was not listed on the credit report and not otherwise
verified by supporting documentation in the file.




                                 56
4. Owner Occupant - The property was occupied by a renter at the time of the
sale. Citi did not document independent verification that the sale qualified for an
exemption from the owner occupant rule.

Sample 63
1. Hardship - The borrowers claim a hardship of unemployment; employment
information is not provided for the borrower and the coborrowers did not report a
change in employment status. Citi did not meet the requirement to independently
verify the claims made by the borrowers. While Citi states its obligation is to
acknowledge the borrower's financial hardship, HUD also requires the lender to
obtain documentation substantiating a reduction in income, an increase in living
expense, or the need to vacate the property.
2. Assets - Citi did not document the total investments held by the coborrowers;
however, significant dividend and interest income is shown on the 2007 and 2008
tax returns included in the file. The letter does not stipulate that the assets must
be sufficient to satisfy the entire mortgage.
3. Income - The file contained income documentation on only one of the three
borrowers named on the mortgage obligation; thus, the other two borrowers’
incomes were not verified. Additionally, dividend income and capital gains
shown on the tax returns in the file were not investigated.
4. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable. Total monthly expenses include $1927 per
month for insurance expenses without supporting documentation.
5. Imminent Default - Citi did not establish that default was imminent. The
coborrower made a payment for March 2010 but Citi informed her that the loan
must be 31 days delinquent before the preforeclosure sale could close. Citi
informed the borrower that Citi could not stop the payment, but that it would be
much easier for the borrower to stop payment through her bank. The borrower
then stopped payment on the check, the payment was missed and the loan was
delinquent so the sale could close. Additionally, because the borrowers reported
significant dividend income and capital gains, they likely had assets sufficient to
sustain the mortgage obligation.

Sample 64
Borrower qualification not disputed.

Sample 65
1. Hardship - The borrower claimed that his job was not bringing in enough
income to make ends meet. There is no documentation that the borrower lost his
job or his income declined. Based on the tax returns and pay stubs provided, the
borrower maintained a consistent income after he chose to move from the
mortgaged property. Citi did not document a verifiable income reduction. While
Citi states its obligation is to acknowledge the borrower's financial hardship,
HUD also requires the lender to obtain documentation substantiating a reduction
in income, an increase in living expense, or the need to vacate the property




                                 57
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
3. Owner Occupant - The borrower was not an owner occupant of the property at
the time of the sale. Citi did not document independent verification that the home
was not used as a rental for more than 18 months prior to the sale.

Sample 66
1. Hardship - The borrower provided a statement claiming a hardship of
relocation for work. Employment information included in the file indicated that
one borrower worked in Duluth, MN while the other worked in St. Paul, MN. It
cannot be determined from the information provided if this was a voluntary move
and therefore avoidable. Citi did not independently verify the claims made by the
borrower. While Citi states its obligation is to acknowledge the borrower's
financial hardship, HUD also requires the lender to obtain documentation
substantiating a reduction in income, an increase in living expense, or the need to
vacate the property.
2. Assets -The bank statement showed a balance of nearly $5,400. Borrowers
with assets are not eligible for the preforeclosure sale option and are required to
re-pay the indebtedness through the use of a repayment plan. The letter does not
stipulate that the assets must be sufficient to satisfy the entire mortgage.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.

Sample 67
1. Surplus - Citi agrees in its response that the borrowers had surplus income.
The letter does not stipulate that surplus income must be sufficient to satisfy the
borrower's entire financial hardship.
2. Expenses - Citi did not demonstrate the basis on which it determined the
borrowers’ expenses were reasonable.

Sample 68
1. Hardship - The borrower provided a statement claiming a need for more space
because she is expecting. Citi did not independently verify the claims made by
the borrower. While Citi states its obligation is to acknowledge the borrower's
financial hardship, HUD also requires the lender to obtain documentation
substantiating a reduction in income, an increase in living expense, or the need to
vacate the property.
2. Income - The file contained income documentation on only one income source
reported by the borrower; thus, the second "other" income source was not
verified.
3. Expenses - Citi did not demonstrate the basis on which it determined the
borrower’s expenses were reasonable.
4. Imminent Default - Citi did not establish that default was imminent. The
borrower claimed she was current on her payments when she applied for the
program. The borrower stated that she was expecting a child in August; because




                                 58
the letter was from February and the preforeclosure sale closed in April this does
not meet the definition of imminent default.




                                59
Appendix C

 SCHEDULE OF PREFORECLOSURE SALE DEFICIENCIES
Sample     Claim       Hardship    Borrower   Borrower   Borrower    Borrower    Imminent      Owner-
 item     amount          not        had         had      income     expenses     default     occupant
number                  verified    assets     surplus      not         not         not       exception
                                               income     verified    verified    verified       not
                                                                                             documented
  1       $76,441.60      x                                 x           x           x
  2       $60,099.76      x           x                     x           x                        x
  3       $88,138.07                  x                     x           x           x
   4      $60,576.91                                                    x
  5       $75,788.74      x                                 x           x
   6      $95,887.89      x                                 x           x                        x
  7       $80,088.30      x                                 x           x           x
   8      $68,966.95                               x        x           x
  9       $67,626.64                                        x           x
  10      $95,391.58      x           x            x        x           x
  11     $104,710.57                                        x
  12      $53,746.13                  x                     x           x
  13     $138,368.21      x                                             x
  14      $99,534.84      x           x                                 x           x
  15      $78,721.82      x                                             x
  16     $159,130.67      x                                 x           x           x
  17      $91,077.12                                                    x
  18      $84,595.81                                        x           x
  19     $175,243.28      x                                 x           x                        x
  20      $68,443.01      x                                             x
  21      $99,920.53                               x                    x
  22      $94,988.38      x                                 x           x
  23      $74,885.31                                        x           x
  24      $60,046.14      x                                 x           x
  25      $87,905.55
  26      $63,587.37      x           x                                 x                        x
  27     $120,252.81                                        x                                    x
  28     $197,250.55      x                                 x           x
  29      $65,511.60      x                                 x           x
  30      $57,779.39                                                    x
  31     $100,507.21      x           x            x        x           x           x
  32     $104,546.32      x                                             x           x
  33      $56,817.44      x                                             x           x
  34      $69,172.91      x                                 x           x




                                              60
 Sample          Claim        Hardship     Borrower      Borrower        Borrower    Borrower    Imminent      Owner-
  item          amount           not         had            had           income     expenses     default     occupant
 number                        verified     assets        surplus           not         not         not       exception
                                                          income          verified    verified    verified       not
                                                                                                             documented
   35           $61,395.50          x                          x                        x
   36           $56,417.81                                                              x
   37           $79,404.43          x                          x                        x
   38           $83,267.38          x                                       x           x           x
   39           $70,097.17          x            x                          x           x
   40           $80,363.93          x            x                          x           x           x            x
   41           $78,809.59                       x                                      x
   42           $57,191.61                                     x            x           x
   43          $147,593.20          x                          x                        x           x
   44           $51,711.94                                                  x           x
   45           $75,133.82          x                                                   x                        x
   46          $110,137.49                                                  x           x
   47           $76,004.72
   48           $68,039.85          x                          x                        x           x
   49          $113,980.84          x            x                          x           x
   50          $108,763.80          x                          x                        x
   51           $72,671.20          x            x             x                        x
   52           $58,576.44          x                                                   x
   53          $110,332.87          x                          x                        x           x
   54          $107,406.04                       x                          x           x
   55           $77,218.33          x                                       x           x           x
   56           $92,314.66          x                                                   x
   57           $25,056.96                                     x                        x
   58           $41,553.62          x                                                   x
   59           $17,730.25          x                                       x           x
   60           $68,475.93          x            x                          x           x
   61           $25,532.23                                                              x
   62           $15,023.45          x                          x                        x                        x
   63           $26,621.32          x            x                          x           x           x
   64           $27,269.18
   65           $20,497.88          x                                                   x                        x
   66           $74,391.86          x            x                                      x
   67           $53,963.89                                     x                        x
   68           $50,266.44          x                                       x           x           x
Total       $5,358,965.04          44           16            15            35          63          16           9
             ($416,142.83) Claims for five eligible loans
            $4,942,822.21 Total for 63 ineligible loans
Yellow highlights indicate that the loan was eligible for the Program.




                                                         61
Appendix D

                                     CASE NARRATIVES

Sample 1
Claim amount: $76,442
Oldest unpaid installment: 10/01/2009
Closing date of preforeclosure sale: 01/08/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
Citi stated that the hardship reason was “Unable to Sell. Remarks - Market value is much lower
than what is owed on the home.” The borrower stated, “I’m not behind on my payments. I
would like to sell my house, but the current market value is lower than my amount owed. I am in
the residential construction industry and do not want to be put in the position of being delinquent
in my payments and ruining my credit as the market continues to decline. I would like to be pro-
active and be given the opportunity to short sale my home. I feel that I should have the same
options as the people who over mortgaged and put people like me who continue to make
payments, in this position.” The borrower also said, “I am in new home construction and our
sales have dropped to numbers that won’t sustain us much longer in this area. I am getting
married in September and my fiancée has taken a large pay cut recently. She owns a home as
well and has much better credit...”

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances4. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $3,629.17 and monthly expenses of
$4,264.47, resulting in monthly surplus income of $(635.30). The borrower-provided earnings
statements documented monthly net income of $4,383.78. We were able to verify monthly
expenses for the borrower of $3,171 using the borrower’s credit report. Independent verification
of the remaining $1,093 in monthly expenses that Citi used to calculate the borrower’s residual
income was not documented. These undocumented expenses included a $496 auto loan claimed
by the borrower that was not reported by the credit bureau. Even when all of the borrower’s
claimed expenses were included, the borrower had net surplus income; therefore, the borrower
appeared able to continue to support the mortgage and did not qualify for a preforeclosure sale.

Sample 2
Claim amount: $60,100
Oldest unpaid installment: 10/01/2009
Closing date of preforeclosure sale: 01/11/2010

4
  Mortgagee Letter 2008-43 Pre-Foreclosure Sale Introduction: Mortgagees must maintain supporting
documentation to demonstrate that a comprehensive review of the mortgagor’s financial records was completed, and
that the mortgagor did not have sufficient income to sustain the mortgage.


                                                      62
Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrower’s stated hardship was that the “family relocated to Minnesota to seek more stable
employment...Since this time, my husband has lost his job. Unfortunately, his unemployment is
coming to an end and we are now struggling to make the mortgage payments.” The borrower’s
husband was not listed on the mortgage. The coborrower listed on the mortgage appeared to be
the borrower’s father based on birthdays reported on the credit report. Neither borrower
appeared to be unemployed.

Because Citi did not document independent verification of the borrowers’ expenses it did not
satisfy the requirement for a comprehensive analysis of the borrowers’ financial situation. Citi
calculated surplus income using net monthly income of $4,485 and monthly expenses of
$4,964.81, resulting in surplus income of $(479.81). The borrower provided pay stubs
supporting net monthly income of $7,302.78; Citi appeared to have not considered the
coborrower’s income in the calculation. We were able to verify monthly expenses of $3,224
using the borrowers’ credit report. The monthly expenses that Citi used in its calculation
differed greatly from those listed by the borrowers totaling $8,581.

The borrower had surplus cash assets. According to the most recent bank statements in the file,
the coborrower had a money market account balance of $15,490 and a share account balance of
$7,548 on August 31, 2009.

Finally, according to the borrower’s hardship letter, the borrower moved from the home in
January 2007; thus, the property had not been owner occupied for approximately 3 years as of
the time of the short sale closing. The borrower’s hardship letter also made reference to
“tenants” but did not state the exact duration when the home was rented. Citi did not document
verification that the home was rented for less than 18 months before the short sale.

Sample 3
Claim amount: $88,138
Oldest unpaid installment: 12/01/2009
Closing date of preforeclosure sale: 01/15/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.
The borrower suffered a financial hardship after relocating from Hawaii to Florida for his job;
however, the borrower did not qualify for the Program because he possessed significant cash
assets and a continued ability to pay.

Because Citi did not document independent verification of the borrower’s financial records, it
did not complete the required comprehensive analysis of the borrower’s finances. The borrower
listed income of $6,287 and expenses of $7,595, including $1,280 in unverified rent expense not
reflected on the bank statements or any document in the file, resulting in residual income of
$(1,308). The borrower-provided pay stubs supported net monthly income of $7,328, and the




                                                63
borrower’s credit report supported monthly expenses of $4,088; the remainder of the borrower’s
claimed expenses was not verified.

On December 5, 2009, the borrower also sent an e-mail to the negotiator stating that he would be
able to pay the mortgage “for the next two months. I have just paid November’s today.” The
negotiator’s reply was “The loan has to be 30 days delinquent at the time of closing in order to
actually close, it is a HUD guideline for short sales. So, if you paid the Novembers payment and
happen to come into an offer in November. The sale will not be able to close until Jan 2nd at the
very earliest and that’s if you don’t make the December payment.” The short sale closed January
15, 2010; therefore, the borrower did not make the December payment despite explicitly stating
that he was able to do so.

Finally, on his workout package, the borrower indicated that he had $19,000 available
immediately and an additional $17,000 would be available in 30 days; the borrower-supplied
bank statements supported cash on hand of $19,723 as of July 23, 2009, and $4,052 in other bank
accounts as of July 6, 2009 (the most recent bank statements in the file).

Sample 4
Claim amount: $60,577
Oldest unpaid installment: 12/01/2009
Closing date of preforeclosure sale: 01/20/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation when he lost his job. Citi
stated that the hardship reason was “Unemployment, Remarks: been laid off for a year.” The
borrower claimed, “I was laid off from my place of employment…on 11/21/2008. I was given 2
months of severance and began receiving unemployment mid February 2009. Since I began
unemployment my financial situation has declined and become bleak to say the least.” The
borrower-provided bank statements indicated payment of unemployment benefits.

Citi did not document independent verification of the borrower’s stated expenses and, therefore,
did not complete the required comprehensive analysis of the borrower’s finances. Citi’s
calculation of surplus income indicated that the borrower had monthly income of $1,448.42 and
monthly expenses of $1,826.84, resulting in monthly surplus income of $(378.42). The
borrower-provided bank statements supported the net monthly income entered by Citi. Citi did
not document verification of the borrower’s claimed expenses, and a credit report was not
included with this file.

Sample 5
Claim amount: $75,789
Oldest unpaid installment: 12/01/2009
Closing date of preforeclosure sale: 01/21/2010

Citi did not properly determine that this borrower was eligible to participate in the program.




                                                64
The borrower suffered an adverse and unavoidable financial situation due to the Army’s
relocating his position from Rex, GA, to Port Arthur, TX. However, Citi did not document
verification that the borrower was required to relocate; copies of the borrower’s orders were not
documented.

Citi did not document independent verification of the borrower’s income. It also did not
document independent verification of $4,449 in borrower-reported expenses including $720 per
month for student loans not included on the borrower’s credit report; therefore, Citi did not
satisfy the requirement to complete a comprehensive analysis of the borrower’s finances.


Sample 6
Claim amount: $95,888
Oldest unpaid installment: 02/01/2010
Closing date of preforeclosure sale: 03/04/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Unable to Sell.” The borrower claimed, “I have not lived
in this house for three years and it is been sitting vacant for the past two years after I moved in
with my husband. I rented it for one year for 500 less per month than my mortgage...I have tried
to rent it for as low as 1000 per month for over a year now with no takers...I cannot keep paying
1565 per month for a house to sit empty. I also do not have 50K anywhere to sell it. I recently
had a child and the plan was for me to stay home with our child but I cannot do this because of
the mortgage payment. I need to discuss a short sale with someone regardless of the effect on
my credit.”

In addition, Citi did not document independent verification of the borrower’s stated expenses
and, therefore, did not complete the required comprehensive analysis of the borrower’s finances.
The borrower claimed net monthly income of $4,000 and monthly expenses of $7,896, resulting
in monthly surplus income of $(3,896). The borrower provided earnings statements that
documented net monthly income of $5,486.12 per month, and Citi completed its analysis using
this verified amount. However, this amount did not include $3,000 per month in bonuses
reported by the borrower. We were able to verify monthly expenses for the borrower of $3,392
using the borrower’s credit report. Independent verification of the remaining $4,504 in monthly
expenses was not documented by Citi. This amount included a monthly $2,000 personal loan
payment claimed by the borrower that did not appear on the credit report and claimed monthly
medical expenses of $600.


Sample 7
Claim amount: $80,088
Oldest unpaid installment: 02/01/2010
Closing date of preforeclosure sale: 03/24/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.


                                                65
Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Unemployment.” The borrowers claimed that the
coborrower lost his job and “Then a week ago I was given a 90 day notice that I will no longer
have a job as my employer is closing his business.” Citi did not document verification of
unemployment for the coborrower or the borrower’s claim that she was to be laid off in 90 days.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $41,000 and monthly expenses of
$4,331.19, resulting in monthly surplus income of $36,668.61. The borrower reported net
personal income of $870,000 per month. In response to our request for verification of the
borrower’s income, Citi stated that the correct total monthly income was $2,347.67. This income
was supported by the borrower-provided earnings statement when only base income and child
support were included in total income; it did not account for commissions reported on the
borrower’s earnings statement or any income received by the coborrower. We were able to
verify monthly expenses for the borrower of $1,906 using the borrower’s credit report.
Independent verification of the remaining $2,425 in monthly expenses was not documented by
Citi.

Finally a title search for the property, a requirement to participate in the Program, was not
documented.


Sample 8
Claim amount: $68,967
Oldest unpaid installment: 02/01/2010
Closing date of preforeclosure sale: 03/30/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation. Citi stated that the
hardship reason was “Divorce, Remarks - can’t afford on one income.” The borrower claimed,
“I am divorced and can no longer afford my mortgage payment without sacrificing basic needs
such as food, medical care, and heating.” The title documented conveyance of the property by a
quit-claim deed from the borrower to the coborrower.

Citi did not maintain supporting documentation to demonstrate independent verification of the
borrower’s reported expenses; therefore, it did not satisfy the requirement of a comprehensive
review of the borrower’s finances. The calculation of surplus income provided by Citi indicated
that the borrowers had monthly income of $5,904.67 and monthly expenses of $2,694.15,
resulting in monthly surplus income of $3,210.52. Because the property was conveyed to the
coborrower by the borrower via a quit-claim deed, we evaluated net monthly income using only
the coborrower’s income; however, according to documentation in the file, both borrowers
remained obligated on the mortgage obligation. Citi did not document independent verification
of the borrower’s income, expenses, or assets. The coborrower-provided earnings statements


                                                 66
documented monthly income of $3,140.40. Using this figure to compute surplus income yielded
$446.25 monthly when including all of the expenses used by Citi in the calculation of residual
income. We were able to verify monthly expenses for the borrower of $1,874 using the
borrower’s credit report. Independent verification of the remaining $820 in monthly expenses
was not documented by Citi. The pay stubs provided by the coborrower documented net income
greater than expenses claimed; therefore, the borrower appeared able to continue to support the
mortgage and did not qualify for a preforeclosure sale.


Sample 9
Claim amount: $67,627
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 04/02/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation caused by divorce.

The borrower claimed monthly expenses of $3,913.64 and $3,541.16 and net income of $3,020
on two different documents. In its calculation of residual income, Citi used net income of $3,020
and expenses of $4,340.54, resulting in residual income of $(1,320.54). The borrower-provided
pay stubs supported net income of $3,666, while the borrower’s credit report supported monthly
expenses of $2,396. If the lesser of the borrower-claimed monthly expenses was accurate, he
would have $125 in surplus income. Citi’s calculation of residual income should have used
income supported by the borrower’s pay stubs. In addition, Citi should have required the
property to be listed for at least its fair market value.

Sample 10
Claim amount: $95,392
Oldest unpaid installment: 01/01/2010
Closing date of preforeclosure sale: 04/08/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the borrower’s hardship reason was “Unemployment.” The borrower claimed, “The
main reasons that I have been late are: My employment has slowed down due to the economy
and my hours cut considerably, I have daycare expenses of $400 per month, I have child support
expense of $700 per month, My daughter has recently had medical bills that have totaled over
$7,000, I have assisted my father financially over the last year due to loss of job.” Citi did not
document a reduction in income. It did not document payment of child care expenses or child
support. Citi did not document the borrower’s financial contributions to his daughter’s medical
bills or financial assistance to his father. The borrower also stated that he had to refinance due to
separation from his ex fiancée. Because the FHA loan was originated to allow the borrower to
refinance, this situation existed when the FHA loan originated in October 2008.




                                                 67
In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. Citi’s calculation of surplus income indicated
that the borrower had monthly income of $6,100 and monthly expenses of $5,874.62, resulting in
monthly surplus income of $225.38. The borrower-provided pay stubs from February and March
2009 documented net monthly income of $3,957.50, while the approval to participate was dated
February 22, 2010, and the sale closed on April 8, 2010. We were able to verify monthly
expenses for the borrower of $2,692 using the borrower’s credit report. Independent verification
of the remaining $3,183 in monthly expenses claimed by the borrower was not documented by
Citi.

In addition, the borrower reported the value of his cash, checking, and savings at $25,000. This
amount indicated that the borrower had sufficient financial resources to continue paying the
mortgage.

Sample 11
Claim amount: $104,711
Oldest unpaid installment: 01/01/2010
Closing date of preforeclosure sale: 04/09/2010

The borrower’s credit report showed expenses in excess of the income supported by pay stubs
included in the file; therefore, there was sufficient evidence to show that the borrower could not
sustain the mortgage obligation.


Sample 12
Claim amount: $53,746
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 04/23/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation when his wife passed away
in 2007. The borrower stated that he lost her income and took on more bills, including medical
bills, after his wife was in the hospital for 2 years. The borrower himself was 76 years old and
still working at the time.

Citi did not document independent verification of the borrower’s stated expenses and, therefore,
did not complete the required comprehensive analysis of the borrower’s finances. The financial
records maintained in the file did not clearly tie to analysis performed by Citi; the income and
expense amounts were materially different. We were able to verify expenses of $2,913 using the
credit report; assuming income remained relatively constant from 2009 to 2010, it could be
inferred that the borrower had income of approximately $3,308 per month from pension, Social
Security, and wage income. The workout solution page maintained in the file stated income of
$1,733 and expenses of $11,418, but it was unclear how Citi calculated these numbers. Given
that credit report items totaled all but $395 of the borrower’s income, it was unlikely that the
borrower had surplus income.


                                                68
The borrower had a certificate of deposit reflecting a balance of $33,750.89 on the bank
statement provided, which would disqualify the borrower from the Program.



Sample 13
Claim amount: $138,368
Oldest unpaid installment: 02/01/2010
Closing date of preforeclosure sale: 04/27/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower claimed inability to remain current and make payments, which “has been the result
of escalated medical expenses and other unforeseen costs.” Citi listed as the hardship reason,
“MEDICAL EXPNS TO MUCH.” It did not document independent verification of escalated
medical expenses or other unforeseen costs. The borrower entered “?” for medical expenses and
a current balance of $1,200 in the projection of monthly expenses. The borrower also reported
an “inability to remain current and make payments,” but his credit report indicated no history of
delinquency.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $3,400 and monthly expenses of
$4,322.08, resulting in monthly surplus income of $(922.08). The borrower-provided pay stubs
supported the borrower-reported income amount, and we were able to verify monthly expenses
for the borrower of $1,993 using the borrower’s credit report. Independent verification of the
remaining $2,329 in monthly expenses was not documented by Citi.


Sample 14
Claim amount: $99,535
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 04/29/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Unable to Sell - Remarks - relocation for job.” The
borrower claimed, “In the last 6 months a new job opportunity presented itself 200 miles south of
our home in Orlando, FL. In order to perform the duties of this job, it has required a relocation
for our family. We have lived apart for the last 6 months and decided now was the time to move.
This distance has caused a lot of stress in our life, personally and financially. We have
purchased a new home in Orlando to reunite our family, and we have decided to move. So we
put our home in St. Augustine on the market for today’s value of $179,500. As you can see from


                                                69
our paper work we owe $263,187 on this home. We have been fortunate to have received an
offer on the home for $181,000. In order for us to close conventionally we would need to come
up with over $81,000 of which we do not have. This is why we need to short sale the home.”
The borrower’s credit report did not include a mortgage obligation for another home. When
asked to “explain the reason you are behind on your mortgage(s) or are in danger of imminent
default,” the borrower responded “n/a.”

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $6,493.50 and monthly expenses of
$6,708.05, resulting in monthly surplus income of $(214.55). The borrower-provided earnings
statements supported the monthly net income used by Citi. We were able to verify monthly
expenses for the borrower of $2,677 using the borrower’s credit report. Independent verification
of the remaining monthly expenses was not documented by Citi. These undocumented expenses
included a monthly mortgage payment for a new home of $2,144 claimed by the borrowers that
was not on the credit report.

The borrowers had a balance of $30,015 in their bank account on January 21, 2010, which would
disqualify them from the Program.


Sample 15
Claim amount: $78,722
Oldest unpaid installment: 04/01/2010
Closing date of preforeclosure sale: 05/03/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason for this short sale was “Family Death.” Citi added, “Remarks -
Homicide of son on Feb of 2008 Funeral expenses Interest increase on credit cards Car repair
State employee furlough.” The family death occurred almost a year before the loan was
originated and 2 years before the default. The borrowers claimed they were experiencing:
reduction or loss in income, change in household financial circumstances, and increase in
expenses. Citi did not document verification of these claims.

Citi documented sending the following statement to the borrowers’ real estate agent before the
short sale was completed: “The account holder is not to make the April payment. If the account
is under 30 days delinquent I will not approve the final HUD for closing.”

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrowers had monthly income of $4,670.17 and monthly expenses of
$8,589.50, resulting in monthly surplus income of $(3,919.33). The borrower-provided earnings
statements supported net monthly income of $4,369. We were able to verify monthly expenses


                                                70
for the borrower of $3,074 using the borrower’s credit report. Independent verification of the
remaining monthly expenses was not documented by Citi. However, for the monthly expenses
entered by Citi for personal loans, the amounts entered under remaining balance and the monthly
payments were reversed, resulting in an overstatement of monthly expenses. Citi entered $4,484
as the monthly payment and $265 as the remaining balance. Correcting this error reduced the
reported monthly expenses by $4,219. After the correction, the calculation of surplus income
provided by Citi would have indicated that the borrowers had monthly income of $4,670.17 and
monthly expenses of $4,370.50, resulting in monthly surplus income of $299.67; therefore, the
borrower appeared able to continue to support the mortgage and did not qualify for a
preforeclosure sale.


Sample 16
Claim amount: $159,131
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 05/07/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Income Curtail, Remarks - can’t afford home any more.”
The borrower claimed, “...our country has experienced one the biggest housing market crashes in
history. This, combined with the rising food and gas prices and current slow down in the
economy, has affected my ability to pay bills on time. In the last couple of years my home has
lost about 55% of it’s value making it impossible to refinance it since the equity I once had is
now gone. In the last six months my economic situation has gotten even worse because with the
slow down and halt in new construction my company is barely staying afloat. After numerous
lay off’s this year we are down to three employees and I can no longer afford the new
payments.” Documentation was not included to verify the borrower’s claimed reduction in
income; documentation comparing the current year and previous years’ incomes would be
needed to verify a reduction of income.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $3,750 and monthly expenses of
$4,794.45, resulting in monthly surplus income of $(1,044.45). The borrower reported monthly
income of $4,820.27 and monthly expenses of $4,860, resulting in monthly surplus income of
$(39.73). The statement of owner distributions provided by the borrower supported the
borrower-reported income. We were able to verify monthly expenses for the borrower of $2,839
using the borrower’s credit report. Independent verification of the remaining $2,021 in monthly
expenses was not documented by Citi.


Sample 17
Claim amount: $91,077
Oldest unpaid installment: 04/01/2010


                                                71
Closing date of preforeclosure sale: 05/12/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower-stated that hardship was “I have been having trouble paying for (the home) due to
the repairs that still have to be done to it. I am unable to make these repairs and make the
mortgage payment at the same time. The foundation is cracked and leaning as well as the porch,
also the roof needs to be completely replaced.” The home’s appraisal supported that there were
conditions affecting the livability, soundness, and structural integrity of the home, including
“front porch steps & floor are settling…the concrete foundation has areas that are cracked and
have shifted...the roof has been partially replaced - part of it is still in need of replacement.” The
appraiser estimated total repair costs of $11,900 that would result in an “as-repaired” value of the
home of $35,000, a $10,000 increase over the “as-is” value of the home of $25,000.

Because Citi did not document independent verification of the borrower-supplied expenses not
included on the credit report, it did not complete the required comprehensive analysis of the
borrower’s finances. The borrower’s pay stubs provided support monthly income of $2,396, and
the borrower claimed monthly expenses totaling $2,433, resulting in residual income of $(37).
We were able to verify expenses of $1,518 using the borrower’s credit report; the remaining
$915 could not be verified. There were no bank statements or other supporting documentation
provided.

Sample 18
Claim amount: $84,596
Oldest unpaid installment: 04/01/2010
Closing date of preforeclosure sale: 05/13/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi stated that the hardship reason was “Divorce”. “Remarks - 2 income to 1.” The borrower
claimed, “I am in a financial hardship due to the economy and the loss of a second income due to
my divorce. When the price of fuel sky rocketed well over $4.00 a gallon is when I really felt
the financial crunch. I was spending approximately $640.00 a month in fuel alone. I drive to
and from work, 80 miles a day. But my divorce is a big bearing as well on my hardship. His
income was 75% more than mine and now all I have from him is child support.” The spouse was
not a coborrower on the loan.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $1,551.33 and monthly expenses of
$2,415.17, resulting in monthly surplus income of $(863.84). The borrower reported monthly
income of $2,502.71 and monthly expenses of $2,551.66, resulting in monthly surplus income of
$(48.95). The borrower-provided earnings statements and bank statement supported income of
$2,331. We were able to verify monthly expenses for the borrower of $1,497 using the




                                                 72
borrower’s credit report. Independent verification of the remaining $1,055 in monthly expenses
was not documented by Citi.


Sample 19
Claim amount: $175,243
Oldest unpaid installment: 04/01/2010
Closing date of preforeclosure sale: 05/21/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrowers did not qualify for the Program because they were not the owner-occupants of the
property. The borrowers indicated on their workout package that they occupied the property as a
“second/vacation” residence, and the borrowers’ 2008 income tax return included in the file
indicated that the property was a three-unit apartment building, while the borrowers’ primary
address was approximately 25 miles away in Crete, IL. Several documents in the file reflected
the subject property as the borrowers’, while others reflected an address in Crete, IL; the file did
not include a resolution of these discrepancies. The borrowers’ stated hardship included that
they “are not in a position to manage or pay for this property” and that the “third floor unit has
been vacant for some time.” Citi’s workable solutions worksheet stated the hardship to be
“unable to rent” and “medical bills as well.” Citi also did not document independent verification
of medical expenses.

The borrowers reported monthly net income of $4,599 and rental income of $1,075 for a total of
$5,674 and total expenses of $28,952. Citi did not document independent verification of the
borrowers’ stated expenses (Citi used $28,139.22 in its calculation of surplus income) including
monthly amounts of $11,368 for utilities and $10,800 for total food expense; therefore, it did not
complete the required comprehensive analysis of the borrowers’ finances. We were able to
verify monthly expenses of $3,133 using the borrowers’ credit report. We were also able to
document direct deposits for Social Security and pension benefits of $4,952; adding the $1,075
stated rental income to other income resulted in total income of $6,027. The most recent tax
return included in the file (2008) indicated rental income of $24,475, but documentation
supporting more recent rental income was not in the file.


Sample 20
Claim amount: $68,443
Oldest unpaid installment: 05/01/2010
Closing date of preforeclosure sale: 06/02/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason for this short sale was “Income Curtail.” Citi added, “Remarks
- pay cuts and lack of work.” Citi did not document independent verification of income
curtailment. The borrower claimed, “The main reasons that caused us to be late are pay cuts and
no merit increases and my sister and her husband who lived with us recently found a home they


                                                73
bought. My sister moving out was not only loss of income to us, but additional costs of child-
care as a result...Now, we are expecting our second child and it’s to the point where we cannot
afford to pay what is owed to Citibank due to increasing medical costs and a lower income.”
The borrower’s sister was not a coborrower on the mortgage, and, thus, her financial contribution
would not affect the borrower’s financial analysis.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $3,500 and monthly expenses of
$6,619.55, resulting in monthly surplus income of $(3,119.55). The borrower-provided earning
statement verified the income reported by the borrower. The borrower-reported monthly
expenses included the “house payment.” This item was added a second time in the plan
calculation completed by Citi, leading to the borrower’s monthly expenses being overstated by
$1,030.66. We were able to verify monthly expenses for the borrower of $1,142 using the
borrower’s credit report. Independent verification of the remaining $4,447 in monthly expenses
was not documented by Citi. This expense included significant monthly amounts for “family
support overseas” ($600), “School MBA” ($831) and “Medical Expenses ($288). The
borrower’s stated expenses for credit cards (used by Citi in its calculation of surplus income)
were also overstated by $311 compared to the amount substantiated by the credit report. Bank
statements were not present in the file.


Sample 21
Claim amount: $99,921
Oldest unpaid installment: 05/01/2010
Closing date of preforeclosure sale: 06/03/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation (income curtailment)
resulting from business closure requiring the borrower to find a new job. The borrower stated
the following: “A little over a year after buying our home, the company Brandon worked for
closed causing him to get another job making far less money. Also when we bought this home,
we didn’t have to pay for health insurance and I didn’t have student loans to pay on. These two
expenses combined have added about $450 to our monthly expenses. In addition, Brandon will
be done with school in June and we will have to start paying on his loans also.”

Citi did not maintain supporting documentation to demonstrate independent verification of the
borrower’s reported expenses; therefore, it did not satisfy the requirement of a comprehensive
review of the borrower’s finances. The calculation of surplus income provided by Citi indicated
that the borrower had monthly income of $4,216 and monthly expenses of $3,562, resulting in
monthly surplus income of $654. The borrower-provided pay stubs documented net monthly
income of $3,682. Even so, these pay stubs documented net income greater than expenses
claimed by the borrower. Using this figure to compute surplus income yielded $119 monthly
when including all borrower-claimed expenses. We were able to verify monthly expenses for the
borrower of $2,512 using the borrowers’ credit report. Independent verification of the remaining


                                                74
$1,051 in monthly expenses was not documented by Citi.


Sample 22
Claim amount: $94,988
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 06/03/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower claimed that she was unable to live in the house because “...the entire house is
contaminated with Chinese drywall.” Citi listed as the hardship reason “reduction and loss of
income.” The borrower did not state that she suffered an adverse and unavoidable financial
situation but rather that there was a defect in the home that prevented her from living in it. The
file did not contain documentation of independent verification of the borrower’s expenses, Citi’s
stated hardship, or a claim that the home was “contaminated” by Chinese drywall.

The calculation of surplus income provided by Citi indicated that the borrower had monthly
income of $2,356 and monthly expenses of $2,716, resulting in monthly surplus income of
$(360). Our review of monthly income based on borrower-provided pay stubs calculated the
monthly income of the borrower and the coborrower to be $454 and $3,947, respectively,
resulting in a total monthly net income of $4,401. The pay stubs included by the coborrower
were from February 2009, approximately 1 year earlier than the pay stubs provided by the
borrower. We were unable to establish from the file whether the borrower had additional income
that pay stubs were not provided for to support the monthly income reported by Citi. Using the
borrowers’ credit report and including the subject mortgage, we were able to verify monthly
expenses of $2,981 for the borrower and coborrower.


Sample 23
Claim amount: $74,885
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 06/04/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation due to the following
circumstances: “I am in construction and there is very little work in Michigan and my pay
continues to decline - no body is building in Michigan.” The borrower-supplied income tax
returns indicated a $19,260 decrease in total income from 2007 to 2008 (from $49,477 to
$30,217). The borrower appeared to have qualified for the Program; however, because Citi did
not maintain documentation of independent verification of the borrower’s income, we could not
be sure of the income decline in 2010.

Citi did not maintain supporting documentation to demonstrate independent verification of the
borrower-supplied financial records; thus, Citi did not complete the required comprehensive
review of the borrower’s income and expenses. The calculation of surplus income using


                                                75
information provided by the borrower to Citi indicated that the borrower had monthly income of
$2,089.74 and monthly expenses of $4,746.59, resulting in monthly surplus income of
$(2,656.85). No verification of the borrower’s pay was included in the loan file. Federal tax
returns documented adjusted gross income of $44,094 and $28,211 for 2007 and 2008,
respectively. The borrower completed a “financial statement,” dated December 11, 2009, and
listed his monthly income as $3,600. We were able to verify monthly expenses for the borrower
of $1,866 using the borrower’s credit report. Independent verification of the remaining $2,881 in
monthly expenses was not documented by Citi.


Sample 24
Claim amount: $60,046
Oldest unpaid installment: 04/01/2010
Closing date of preforeclosure sale: 06/14/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason for this short sale was “Mortgagor Ill.” Citi added, “Remarks -
Due to medical issues that affected the mh work performance he was replaced.” The borrower
entered the following statement when he requested the short sale: “Having been recently
diagnosed with severe anxiety disorder and panic attacks. I have high blood pressure all of
which has created a disability to perform my daily duties and responsibilities. My employer
recognizing these disabilities has replaced my position with a more competent employee.” Citi
entered the following statement from the borrower on May 25, 2010: “Said, he only did a SS
because he was going to get fired and wouldn’t be able to pay mortgage.... Employer is working
with him and he wants to makeup back payments on mortgage and keep home.” Citi entered the
following statement from the borrower on June 2, 2010: “I had gone to the doctor last week and
gotten a decent report. I thought I was going to be able to keep my job. I am going to half to
have surgery so I am going to be losing job.” The short sale was completed on June 14, 2010.
Citi did not document verification that the borrower lost his job.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported income or expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $500 and monthly expenses of
$6,076.03, resulting in monthly surplus income of $(5,576.03). The borrower did not provide
pay stubs, and Citi did not document verification of unemployment. The borrower-provided
bank statements indicated payroll deposits from the employer as recently as March 31, 2010.
We were able to verify monthly expenses for the borrower of $2,992 using the borrower’s credit
report. Independent verification of the remaining $3,084 in monthly expenses was not
documented by Citi.


Sample 25
Claim amount: $87,906
Oldest unpaid installment: 04/01/2010


                                                76
Closing date of preforeclosure sale: 06/21/2010

The borrower suffered an adverse and unavoidable financial situation when one of the two
borrowers on the mortgage passed away May 30, 2010 (they were already accepted into the
Program at that time); death of the borrower reduced the household income by $2,435 to $2,078
per month. The borrower properly qualified for the Program with the borrower’s hardship and
finances.

Before the death of the borrower, the borrowers claimed a hardship due to reduced income and
increased expenses. The borrowers’ 2008 tax return reflected unemployment compensation
partially substantiating the borrower’s claim. Citi did not document independent verification of
the borrower’s listed expenses not reflected on the credit report; therefore, it did not complete the
required comprehensive review of the borrowers’ finances. The borrowers claimed and Citi used
in the calculation of surplus income, income of $4,050, while their pay stubs supported income
of $4,513. The borrowers claimed expenses of $5,458; we were able to verify $2,950 using the
borrowers’ credit report. Verification of the remaining expenses was not documented by Citi.


Sample 26
Claim amount: $63,587
Oldest unpaid installment: 04/01/2010
Closing date of preforeclosure sale: 06/28/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Exc Obligations, Remarks: I no longer live at residence.
With 2 house payments, preschool and other bills I can no longer afford the mtg. I remodeled
most of the house.” The borrower claimed, “I have one child and would like to have another.
My soon to be wife and I would like to move on with our lives and get married, however with
two mortgages and daycare/preschools to pay for along with many other bills I regret to inform
you that I will no longer be able to make the payments.” The borrower’s credit report did not list
a second mortgage.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $3,400 and monthly expenses of
$4,191.59 (the borrower reported expenses of $4,425), resulting in monthly surplus income of
$(791.59). The borrower-provided pay stubs documented net monthly income of $3,772.73. We
were able to verify monthly expenses for the borrower of $3,048 using the borrower’s credit
report and bank statements. Independent verification of the remaining $1,377 in monthly
expenses was not documented by Citi. The borrower claimed a $2,000 monthly mortgage that
was not reflected on the credit report.

As of April 12, 2010, the borrower had $5,702 in his bank account. The borrower walked away
from his home and mortgage obligation. The borrower remarked in his letter, “Effective April 1,


                                                 77
2010 I will stop making payments on my house at 2480. I will start removing all of my things
effective March 1, 2010.” Citi’s documentation also indicated that the borrower was no longer
living in the home. The borrower was not eligible for the Program because it is not available to
borrowers who have abandoned their mortgage obligation despite their continued ability to pay.


Sample 27
Claim amount: $120,253
Oldest unpaid installment: 05/01/2010
Closing date of preforeclosure sale: 06/30/2010

The borrower suffered an adverse and unavoidable financial situation after being unemployed for
14 months.

The borrower’s bank statement indicated weekly unemployment benefit payments substantiating
the unemployment claim. The borrower stated that he received unemployment benefits of
$1,720 per month, which was reasonably consistent with the $1,863 per month supported by the
deposits shown on the bank statement. However, $2,700 in “Other Additional Income” shown
by the borrower was not verified. The borrower claimed expenses of $7,829; the credit report
supported monthly expenses of $7,996. Therefore, the borrower had negative surplus income
and qualified for the Program.

The borrower indicated that he was not living in the home as a primary residence, but the file did
not document justification of when and why he moved out. The address on the borrower’s credit
report indicated that he was living in Harrison, NY, approximately 30 miles from the subject
property, at the time the credit report was printed.


Sample 28
Claim amount: $197,251
Oldest unpaid installment: 04/01/2010
Closing date of preforeclosure sale: 06/30/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation by the borrower.
According to documentation in the file, the borrower began receiving Social Security retirement
benefits in September 2009. Employment information included on the borrower’s credit report
indicated that he was “self” employed and worked with “investments” as of January 2007; no
information on the borrower’s previous income or assets was provided. The borrower stated that
he suffered an “extreme loss of income” but did not cite the reason for such a loss; Citi listed the
borrower’s hardship reason as “unknown” on the workout solutions worksheet.

Citi did not document independent verification of the borrower’s expenses. The borrower
claimed total monthly expenses of $9,774 while the credit report substantiated only $5,807,
leaving $3,967 unverified by Citi. Because it did not document independent verification of the
borrower’s expenses, Citi did not complete the required comprehensive analysis of the


                                                78
borrower’s finances. Citi should have determined whether there was an additional income
source, given that the borrower was current on his payments on the expenses shown on his credit
report, despite how greatly they exceeded his reported income of $1,856 per month.

Sample 29
Claim amount: $65,512
Oldest unpaid installment: 05/01/2010
Closing date of preforeclosure sale: 07/02/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower’s stated reason for requesting a short sale was “because im behind with all my bills
theirs not enough money to cover my payments.” The borrower’s credit report indicated total
outstanding nonmortgage debt of $19. Citi classified the hardship reason as “Income Curtail”
but did not document verification of a reduction in income.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $2,000 and monthly expenses of
$2,715.78, resulting in monthly surplus income of $(715.78). The borrower-provided pay stubs
documented net monthly income of $2,130.10. Citi did not consider the income and expenses of
the coborrower in the calculation of surplus income documented in the file. We were able to
verify monthly expenses for the borrower of $997 using the borrower’s credit report.
Independent verification of the remaining $1,718 in monthly expenses was not documented by
Citi. These unverified monthly expenses included $275 for an automobile loan and $356 in
credit card or installment loan minimum payments that were not reported on the borrower’s
credit report. Citi did not document a reconciliation between the $650 for items that should be
substantiated by the credit report and the credit report-supported monthly payments of $19, a
$631 per month overstatement. Citi did not document a comprehensive analysis of the
coborrower’s finances. Neither a credit report nor earnings statements were included for the
coborrower. Tax returns indicated that the coborrower had income but did not provide sufficient
information to calculate net monthly income.


Sample 30
Claim amount: $57,779
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 07/07/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation due to “relocation for
employment purposes over an hour away. My home office shifted to the office in Pensacola, FL
over 2 years ago.”



                                                79
Citi did not document independent verification of the borrower’s expenses including $975 per
month in rent, $500 per month in credit cards, and $200 per month in charitable donations. The
borrower’s credit report justified credit card monthly payments of only $54 and total monthly
expenses of $1,385. These expenses, when subtracted from monthly net income of $4,229,
resulted in surplus income of $2,844.


Sample 31
Claim amount: $100,507
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 07/09/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower
leading to default. The borrower’s stated hardship was “I need to sell my house due to getting
married in October which will cause me to be taking on another mortgage...The money has been
used to pay major credit card debt as well as several medical bills. This type of debt will
continue to arise with no end in sight and I fear that I will not be able to afford my mortgage with
the current state of overtime ending and possibility of hours getting cut.” It was unclear how the
borrower would be made to take on another mortgage and how it would take precedence over his
current mortgage obligation. The borrower stated that he would be getting married in October,
while the short sale closed in July 2010. The borrower’s stated hardship does not meet the
definition of imminent default.

According to tax returns for 2008 and 2009 included in the file, the most recent of which was
filed less than 3 months before the borrower was accepted into the Program, the borrower
received rental income from at least three rental properties in each year. According to
Mortgagee Letter 2008-43, borrowers with assets are required to repay the indebtedness through
the use of a repayment plan.

Additionally, because Citi did not document independent verification of the borrower’s stated
expenses, it did not complete the required comprehensive analysis of the borrower’s financial
records. Citi used an expense amount less than that listed by the borrower to calculate positive
surplus income of $481.48. The borrower listed monthly income of $3,000 and expenses
totaling $3,134; the borrower-supplied pay stubs supported net monthly income of $3,713 (or
$3,408 with minimal overtime; the borrower stated that the overtime pay would be ending),
resulting in surplus income of $579 (or $274 with minimal overtime). We were able to verify
monthly expenses of $1,750 using the credit report, which did not include “major credit card
debt” as stated in the hardship letter; the remaining $1,384 in expenses claimed by the borrower
could not be verified.

The sale did not result in the minimum net sales proceeds required by the Program criteria and
identified in the approval to participate, falling below the 84 percent of “as-is” value
requirement. According to the appraisal addendum, the home was listed for sale for $25,000,
less than the $31,000 “as-is” fair market value.



                                                80
Sample 32
Claim amount: $104,546
Oldest unpaid installment: 05/01/2010
Closing date of preforeclosure sale: 07/14/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower’s stated reason for being behind on her mortgage was “Our family has gone
through a very difficult financial time for the past 2 years. My parents’ health is failing and they
can no longer take care of themselves nor can they afford the home health care nurse on a full
time basis. I have very few options available to me at this time. These new health care
requirements are adding to my financial burden. As a result, I am forced to request a short sale
of my home. My parents’ health comes before anything else. I am hopeful that my financial
situation will soon turnaround but with a cut in salary being projected due to decreased
enrollment I have no choice but to request a short sale.” Citi classified the hardship reason as
personal problems but did not document verification of the reduction in income or increase in
expenses. Moreover, the borrower’s parents were not coborrowers on the mortgage, and, thus,
their financial situation would not affect the borrower’s financial analysis.

In addition, Citi did not maintain supporting documentation to demonstrate that independent
verification of the borrower’s financial records was completed. According to the borrower-
supplied income and expenses information, she earned $2,754 monthly and had $3,969 in
expenses. The borrower’s pay stubs supported net income of $2,970 per month. However, Citi
did not document verification of monthly expenses including $222 in homeowner association
fees, $200 in child care, $410 in utilities, $150 in medical expenses, $415 in automobile
expenses, $725 for parents home health care, or $400 in groceries and toiletries expenses claimed
by the borrower. Review of the borrower’s credit report verified $1,576 in fixed monthly
expenses. Due to the lack of documentation of independent verification of the borrower’s fixed
monthly expenses, Citi did not include a proper, fully documented analysis of net surplus
income.


Sample 33
Claim amount: $56,817
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 07/16/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason for this short sale was “Exc Obligations,” Citi added, “Remarks
- I have not received a pay increase. Increase in HOA [homeowner association] fees and
declining market. I am marrying a women that has 2 kids. 1 bedroom will not work.” The
borrower cited seven reasons why he was seeking a short sale. The reasons that could qualify as
adverse and unavoidable financial situations included increase in expenses, increased medical
bills, and change in family situation. Citi did not document verification of these events.


                                                 81
Most of the borrower’s stated hardships had to do with the property being worth less than the
amount owed. The borrower also stated, “it may only be a matter of time before I am laid off”
and “planning on getting married to a woman that has 2 small girls” but did not identify a
timeframe or support for either of these events. The borrower’s claims of the “increase in
association dues” and “increase in medical bills that (my) insurance won’t cover” are not
substantiated by supporting documentation. He wrote that the increased medical bills were from
an auto accident a few years ago. He obtained his FHA loan 14 months before he wrote this
letter; therefore, the medical expenses would have existed at the time the loan was underwritten.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $2,626 and monthly expenses of
$3,008.66, resulting in monthly surplus income of $(382.66). The borrower-provided pay stubs
supported the borrower-reported income amount. We were able to verify monthly expenses for
the borrower of $1,113 using the borrower’s credit report. Independent verification of the
remaining $1,895 in monthly expenses was not documented by Citi. This amount included $990
in expenses that were included in the surplus income calculation but not included on the detail of
expenses screen shot provided by Citi.


Sample 34
Claim amount: $69,173
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 07/23/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Medical. Remarks - Sellers have ill parents that they must
take care of which has been an increased financial burden.” The borrower claimed, “My father
in-law has been disabled for several years and also has diabetes and no longer works. My
mother in-law has macular degeneration in both eyes and has recently been diagnosed with
emphysema. We drive to Chattanooga, Tennessee every weekend to take care of them. Now we
are having to take time off at work due to doctor appointments, surgeries and test they must
have.”

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $4,522.59 and monthly expenses of
$6,736.72, resulting in monthly surplus income of $(2,214.13). The borrower-provided earnings
statement documented monthly net income of $6,646.14. Using this figure to compute surplus
income yielded $(90.58) monthly when including all of the borrower’s claimed expenses. We
were able to verify monthly expenses for the borrower of $3,236 using the borrower’s credit
report. Independent verification of the remaining $3,500 in monthly expenses was not


                                                82
documented by Citi. These undocumented expenses included $383 in loans claimed by the
borrower that were not on the credit report.


Sample 35
Claim amount: $61,396
Oldest unpaid installment: 07/01/2010
Closing date of preforeclosure sale: 08/02/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower’s stated reason for requesting a short sale was “Now, not only for physical reasons
but financial reasons as well, my parents need to move here to Denver, where I can help them
pay a monthly mortgage and take care of them. The main problem is that my current house is
not big enough for the 2 of them, myself, and [the coborrower], and the house is not friendly to
elderly individuals. There are only bedrooms on the top floor, so they would have to climb many
stairs to get to a place to sleep which is becoming closer to impossible for them. My father is 77
and my mother is 66 and they are both in need of additional help for daily tasks. I need to live
with my parents to help them physically and financially as my father will not be working any
more after their current house goes on the market.” Citi classified the hardship reason as family
illness but did not document verification of the borrower’s financial support of her parents.
Moreover, the borrower’s parents were not coborrowers on the mortgage, and, thus, their
financial situation would not affect the borrower’s financial analysis.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrowers had monthly income of $4,762 and monthly expenses of
$4,096.04, resulting in monthly surplus income of $665.96. The borrower-provided pay stubs
documented combined net monthly income of $4,884.88. We were able to verify monthly
expenses for the borrower of $1,666 using the borrowers’ credit report. Independent verification
of the remaining $2,430 in monthly expenses was not documented by Citi. Citi did not
document a reconciliation between the $1,360 for items that should be substantiated by the credit
report [credit cards ($330), other loans ($200), and auto loans ($830)] and the credit report-
supported monthly payments of $601, a $759 per month overstatement.

Additionally, the coborrower on the loan did not claim a hardship and had net monthly income of
$2,417 and credit report-verified monthly expenses of $1,128, including the entire monthly
mortgage payment, leaving surplus income of $1,289 before living expenses. Citi did not
document a comprehensive analysis of the borrowers’ finances individually or justification
requiring both borrowers to vacate the property. Documentation in the file indicated that the
coborrower may have been able to maintain the property.

Finally, even when including the unverified expenses claimed in the financial information
provided by the borrower, Citi calculated that the borrower had positive monthly residual
income.


                                                83
Sample 36
Claim amount: $56,418
Oldest unpaid installment: 07/01/2010
Closing date of preforeclosure sale: 08/04/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrowers suffered an adverse and unavoidable financial situation. The borrowers stated
that they were having a hard time with their mortgage payments due to a serious auto accident,
resulting in both borrowers being out of work for a period, excessive medical bills, and a totaled
automobile. The borrowers also stated that they had been unable to rent their second property
and that one of them had been laid off since February of 2010.

Pay stubs supported borrower income of $3,882. We were able to verify expenses totaling
$2,105 using the credit report; however, Citi did not document independent verification of the
remaining $2,714 listed by the borrowers. Because Citi did not document independent
verification of the borrowers’ expenses, it did not satisfy the requirement for a comprehensive
analysis of the borrowers’ finances.


Sample 37
Claim amount: $79,404
Oldest unpaid installment: 07/01/2010
Closing date of preforeclosure sale: 08/04/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation experienced by the
borrower. The borrower claimed, “My husband and I have been having a rough time financially
this year. He lost his job and has been looking for a job for the last 2-3 months with no success.
The development in which our town home is located was flooded and evacuated in September
2009. Since the flooding, we have been putting in financially to repair the town house.” The
claim was supported by a $10,619 note on the borrower’s credit report with a reporting date of
October 2009.

The file did not contain documentation that Citi calculated the borrower’s net surplus income.
The calculation of surplus income using information provided by the borrower indicated that the
borrower had net monthly income of $2,591.97 and monthly expenses of $2,308, resulting in
monthly surplus income of $283.97. The borrower-provided earnings statements supported the
income reported by the borrower. We were able to verify monthly expenses for the borrower of
$2,571 using the borrower’s credit report. This amount exceeded the total monthly expenses
claimed by the borrower. The credit report included $1,213 in monthly payments not claimed as
expenses by the borrower. The borrower-provided earnings statements and credit bureau report
supported the claim that the borrower had negative surplus income.



                                                84
Sample 38
Claim amount: $83,267
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 08/05/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial event that qualified the borrower for
the Program. Citi listed the hardship reason as “retiring soon and will not be able to afford
investment property.” Citi did not document independent verification that the borrower’s
retirement was an unavoidable event.

In addition, Citi did not maintain supporting documentation to demonstrate that a comprehensive
review of the borrower’s financial records had been completed. The calculation of surplus
income provided by Citi indicated that the borrower had monthly income of $0 and monthly
expenses of $3,422.35, resulting in monthly surplus income of $(3,422.35). Our review of the
borrower’s tax returns (which were filed as “single” filing status) found reported income from
pensions and annuities of $38,227 and $35,287 in 2008 and 2009, respectively. The borrower
also reported adjusted gross income of $67,856 and $64,841 in 2008 and 2009, respectively. The
documents provided by Citi for this file did not include pay stubs; however, our review of the
borrower-provided bank statement found credits to the account on May 7, 2010, from payroll in
the amount of $735.01 and on May 3, 2010, from pension payments in the amount of $2,593.42.
Based on these payments, additional documentation to support the borrower’s claim of $0
income was required. Citi did not document independent verification of the borrower’s claimed
income of $0. Using the credit report, we were able to verify monthly expenses for the borrower
of $1,857. Independent verification of the remaining $1,565 in monthly expenses was not
documented by Citi.


Sample 39
Claim amount: $70,097
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 08/06/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason for this short sale was “Other.” Citi added, “Remarks - Seller
has two homes and can’t afford both mortgages.” The borrower’s credit report did not list a
second mortgage. Additionally, the borrower stated, “I was pregnant and was put on bed rest
from my job.” The borrower claimed negative financial issues resulting from her divorce;
however, the mortgage was originated as a refinance, which the borrower stated occurred
“following her divorce in January 2009” (the loan originally closed January 26, 2009). After the
short sale, the borrower faxed to Citi a document that stated the following: “During the sale
process I was advised to miss at least one payment in order to ensure the short sale process
would quickly go through. This advice came to me through my real estate agent who received



                                                85
the information from the advisor she was working with at Citi Bank. I followed the advice, but
again, up until that point had not missed any payments.”

In addition, Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses; therefore, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $2,750 and monthly expenses of
$3,848.62, resulting in monthly surplus income of $(1,098.62). The borrower-provided earnings
statement documented monthly net income of $4,558.42. Using this figure to compute surplus
income yielded $709.80 monthly when including all claimed expenses. We were able to verify
monthly expenses for the borrower of $1,903 using the borrower’s credit report. Independent
verification of the remaining $1,945 in monthly expenses was not documented by Citi. These
undocumented expenses included $584 in loans claimed by the borrower that were not reported
on the credit report.

As of March 31, 2010, the borrower had $13,545 in her bank accounts. Bank statements showed
that the borrower had sufficient assets to continue making approximately 11 mortgage payments.


Sample 40
Claim amount: $80,364
Oldest unpaid installment: 07/01/2010
Closing date of preforeclosure sale: 08/06/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower’s stated reasons for requesting the short sale were “I have only been able to find
one renter for 4 days in the last 10 months, this has resulted in me not being able to recuperate
any of the mortgage payment....I feel that currently I cannot afford this burden and that my
conditions will only get worse. I help support my mother financially and I recently had to pay
$6,500 in surgery costs, more costs will follow. As of right now I cannot save a penny, any
unexpected bumps in the road will continue to drain my savings, not being able to save for the
future is no way to live. My current employer, Clark County, NV is in financial trouble with the
state making many budget cuts leaving the possibility of future pay cuts and possible reduced
hours and already my extra hours are being reduced, this is income I depend on. Similar city and
county entities are making employees take mandatory furlough days or cutting base salaries by
anywhere from 3-6% It is only a matter of time before this happens to me.” Citi classified the
hardship reason as family illness but did not document independent verification of the medical
expenses. Moreover, the borrower’s mother was not a coborrower on the mortgage, and, thus,
her financial situation would not affect the borrower’s financial analysis. The borrower’s other
“hardships” related to Clark County, NV, were speculative.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. According to Citi’s analysis, the borrower
earned $1,728 monthly and had $4,168.26 in expenses. The borrower’s pay stubs documented


                                                 86
net income of $4,858.92 per month. We were able to verify monthly expenses for the borrower
of $2,359 using the borrower’s credit report. Independent verification of the remaining $1,810 in
monthly expenses was not documented by Citi. The pay stubs provided by the borrower
documented net income greater than expenses claimed by the borrower.

In addition the borrower reported $28,000 in his checking and savings accounts.

Finally this borrower was not living in the subject property. Citi did not document that the
borrower qualified under any of the exceptions that allow a borrower to participate in the
Program while not living in the property. The borrower’s 2009 Internal Revenue Service Form
1040, Schedule E, reflected that the subject property was a rental property, and the borrower’s
credit report indicated that his current address was approximately 11 miles away.


Sample 41
Claim amount: $78,810
Oldest unpaid installment: 07/01/2010
Closing date of preforeclosure sale: 08/23/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse financial situation due to “being unemployed for
approximately one month in 2007; expenses incurred from a fire to the adjacent condominium
and being displaced for approximately four months; having my neighbor’s unleashed dog
viciously attack my dog and consequently my dog needing emergency surgery for her wounds;
and two automotive accidents resulting in insurance and medical costs.”

Citi did not document independent verification of the borrower’s reported expenses; $1,349 of
the borrower’s $3,186 reported expenses could be verified with the documentation supplied. The
borrower’s average monthly net income was $3,149.

Additionally, a bank statement in the file indicated that the borrower was a coholder on a money
market account with a balance of $18,034.


Sample 42
Claim amount: $57,192
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 08/26/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation. Citi stated that the
hardship reason was “Unemployment.” The borrower claimed, “I lost my job April of 2009. I
have not found another job yet. In December I lost my truck because I could not make my
payments. I am behind in all my utility bills so I am making payments to them before they shut



                                                87
them off. I know I am going to lose my house because I cannot find a job.” The unemployment
claim was supported by pay stubs.

Citi did not document independent verification of the borrower’s stated income or expenses and,
therefore, did not complete the required comprehensive analysis of the borrower’s finances. It
did not document verification of the income used in the calculation of surplus income or the
income claimed by the borrower. The calculation of surplus income provided by Citi indicated
that the borrower had monthly income of $5,152 and monthly expenses of $3,754.81, resulting in
monthly surplus income of $1,397.19. The borrower reported net personal income of $2,576 per
month. Borrower-provided unemployment pay stubs supported net monthly income of $1,950.
We were able to verify monthly expenses for the borrower of $958 using the borrower’s credit
report; however, the borrower’s claimed $600 per month car payment was not reflected on the
credit report. Independent verification of the remaining $2,797 in monthly expenses was not
documented by Citi.

Finally, this transaction did not generate the net sales proceeds required by the mortgagee letter,
and the file did not contain an approved variance from HUD. The sale generated net sales
proceeds of 83.7 percent of the “as-is” appraised value of the property during the first 30 days of
participation in the Program when 88 percent was the requirement.


Sample 43
Claim amount: $147,593
Oldest unpaid installment: 08/01/2010
Closing date of preforeclosure sale: 09/01/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower claimed, “Retirement at age 62 and will be taking care of my mother who now is
91 years old. At the end of 2010 I will be 62 and returning to Ohio to take care of my mother.
Income will be only Social Security.” Earnings statements indicated that borrower was
contributing to a 401K, providing additional retirement income. The borrower’s hardship—
future retirement—was not an adverse and unavoidable circumstance. Further, because
retirement would not prevent the borrower from making the next required payment in the month
in which it was due, as required by Mortgagee Letter 2010-04, the borrower was not facing
imminent default at the time of acceptance into the Program or when the property was sold.
Because the apparent hardship was projected into the future, it was not possible for Citi to verify
that the borrower retired.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The borrower claimed net monthly income of
$5,230 and monthly expenses of $4,730, resulting in monthly surplus income of $500. The
borrower-provided earnings statements documented net monthly income of $4,630 per month.
We were able to verify monthly expenses for the borrower of $2,975 using the borrower’s credit



                                                88
report. Independent verification of the remaining $1,755 in monthly expenses was not
documented by Citi.

Finally, the sale did not generate the minimum net sales proceeds required by the mortgagee
letter, and the borrower’s credit report indicated that the borrower had a second FHA mortgage.
Citi did not document an approved variance from HUD or an exception allowing the borrower to
qualify for the Program.


Sample 44
Claim amount: $51,712
Oldest unpaid installment: 08/01/2010
Closing date of preforeclosure sale: 09/03/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation due to the following event:
“In June of 2008, I lost my job and could not find anything in Illinois to support our family. I
found a job in Vermont and decided it made sense to take the job as I had not found anything
quickly in Illinois.”

Citi did not maintain supporting documentation to demonstrate independent verification of the
borrower-supplied financial records; thus, it did not complete the required comprehensive review
of the borrower’s finances. The calculation of surplus income provided by Citi indicated that the
borrower had monthly income of $2,364.44 and monthly expenses of $6,205.68, resulting in
monthly surplus income of $(3,841.24). The borrower-provided pay stubs documented net
monthly income of $4,736.31. The borrower’s credit report verified monthly expenses of
$2,445. Independent verification of the remaining $3,761 in monthly expenses was not
documented by Citi.


Sample 45
Claim amount: $75,134
Oldest unpaid installment: 08/01/2010
Closing date of preforeclosure sale: 09/03/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrowers.
It stated that the hardship reason was “Income Curtail”; Citi did not document income
curtailment, and the borrowers did not claim income curtailment. The borrowers claimed, “We
currently owe more than what the home is worth. At this time there is no way we can sell the
residence for anything close to what we owe...We would like to be out from under this home.
We have been borrowing money from my husband’s parent’s to enable us to pay the mortgage.”
The borrowers moved to a new residence 1.39 miles from the subject property. According to the
borrowers’ credit report, the mortgage payment on the new residence was $30 less than the



                                                89
mortgage on the subject property; therefore, income curtailment would not be a reasonable
explanation for the borrowers’ leaving the FHA property originally.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrowers’ reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrowers’ finances. The calculation of surplus income provided
by Citi indicated that the borrowers had monthly income of $7,265.21 and monthly expenses of
$7,694.78, resulting in monthly surplus income of $(429.57). The earnings statements provided
by the borrowers supported the income entered by Citi. We were able to verify monthly
expenses for the borrowers of $4,167 using the borrowers’ credit report. Independent
verification of the remaining $3,527 in monthly expenses was not documented by Citi. These
non-credit report expenses includes $2,000 monthly for daycare, which was $484 more than the
daycare payments supported by bank statements and the tax return.

Finally, the borrowers were not owner-occupants of the property. According to the borrower-
supplied tax return, the property was rented beginning January 2, 2009. According to Mortgagee
Letter 2008-43, “participants are to be owner-occupants of a one-to-four unit single-family
dwelling with a FHA-insured mortgage...Mortgagees are authorized to grant reasonable
exceptions to non-occupant borrowers when it can be demonstrated that the need to vacate was
related to the cause of default (e.g., job loss, transfer, divorce, death), and the subject property
was not purchased as a rental or used as a rental for more than 18 months prior to the
mortgagor’s acceptance into the Program.”


Sample 46
Claim amount: $110,137
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 09/08/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation when her income was
reduced. Citi stated that the hardship reason was “Exc Obligations.” The borrower claimed, “I
have been experiencing this hardship since about 2008 when my job cut back all of it available
overtime which reduced my income about $600.00.” Earnings statements were included that
supported the claim of a reduction in income.

Because Citi did not maintain supporting documentation to demonstrate independent verification
of the borrower’s reported expenses, it did not satisfy the requirement of a comprehensive review
of the borrower’s finances. The borrowers’ workable solutions application claimed net monthly
income for both borrowers of $5,413.84 and monthly expenses of $2,673.92, resulting in
monthly surplus income of $2,739.92. The borrowers’ electronically submitted financial data
claimed monthly net income of $2,684 for the borrower and $0 for the coborrower and monthly
expenses of $2,887, resulting in monthly surplus income of ($203). Citi used net monthly
income of $2,680 and expenses of $3,151.40, resulting in surplus income of ($471.40). It did not
consider the coborrower’s finances in its calculation of surplus income, nor did it document the
basis for its exclusion.


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The borrower-provided earnings statements documented net monthly income of $3,013.04 per
month. Verification of the coborrower’s income was not documented. We were able to verify
monthly expenses for the borrower of $1,950 using the borrower’s credit report. Independent
verification of the remaining $937 in monthly expenses was not documented by Citi. The pay
stubs provided by the borrower documented net income greater than expenses claimed; therefore,
the borrower appeared able to continue to support the mortgage and did not qualify for a
preforeclosure sale.


Sample 47
Claim amount: $76,005
Oldest unpaid installment: 06/01/2010
Closing date of preforeclosure sale: 09/08/2010

Citi did not document independent verification of $1,800 ($5,575 claimed - $3,775 on credit
report) in expenses claimed by the borrower; however, the credit report verified expenses
($3,775) in excess of income supported by the borrower’s pay stubs ($3,452), indicating that the
borrower had negative surplus income and, therefore, qualified for the Program.


Sample 48
Claim amount: $68,040
Oldest unpaid installment: 08/01/2010
Closing date of preforeclosure sale: 09/23/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Unknown.” The borrower claimed, “My husband’s boss
let him know in January that at the end of July he will be laid off. He let him know in advance
only because we had a new born and understood we would need to make arrangements because
of how tight things are all ready in our household. When this happens we will be unable to pay
our mortgage...eight months ago we had the joy of the birth of our first child Riley. This has
added additional financial burden in the forms of day-care, medical bills and day to day living
expenses associated with children.” The property was sold in September, but verification of the
job loss was not documented.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s expenses, it did not satisfy the requirement of a comprehensive
review of the borrower’s finances. The calculation of surplus income provided by Citi indicated
that the borrower had monthly income of $4,880 and monthly expenses of $4,856.24, resulting in
monthly surplus income of $23.76. The borrower-provided earnings statements documented net
monthly income of $5,333.76 per month, which included both borrowers’ incomes since the job
loss was not verified. We were able to verify monthly expenses for the borrower of $2,828 using
the borrower’s credit report. Independent verification of the remaining $2,098 in monthly



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expenses was not documented by Citi. Even when the unverified expenses were included, the
borrower had positive monthly residual income of $407.76


Sample 49
Claim amount: $113,981
Oldest unpaid installment: 08/01/2010
Closing date of preforeclosure sale: 10/21/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation leading to default of the
loan; the reason for hardship stated by Citi was “other,” “upside down in mortgage, additional
strain on family, can no longer afford to pay mortgage.”

Because Citi did not document independent verification of the borrowers’ expenses, it did not
satisfy the requirement for a comprehensive analysis of the borrowers’ financial situation. In its
calculation of surplus income, Citi counted the mortgage payment twice and used the borrower-
supplied expenses including $679 in credit report items not supported by the credit report; Citi
also used the borrower-supplied biweekly net income amounts as monthly amounts. The
borrower claimed net income of $6,067 and monthly expenses of $6,763, resulting in surplus
income of $(696). Citi’s calculation of surplus income used monthly income of $2,800 and
expenses of $8,638.93, resulting in surplus income of $(5,838.93). The borrower-supplied pay
stubs supported monthly net income of $6,492. We were able to verify monthly expenses of
$3,386 using the credit report. Using income supported by pay stubs and borrower-stated
expenses adjusted for overstated credit report items ($679 for credit cards and installment loans)
resulted in residual income of $408.

Finally, the borrowers’ bank statement showed a balance of $13,695 in April 2010. Borrowers
with assets are not eligible for a preforeclosure sale.


Sample 50
Claim amount: $108,764
Oldest unpaid installment: 09/01/2010
Closing date of preforeclosure sale: 10/22/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The loan file did not document an adverse and unavoidable financial situation suffered by the
borrower. The borrower’s stated hardship was that she and her fiancé “separated. He no longer
lives in the property and as a result no longer pays 50% of the mortgage and the bills anymore;”
however, Neighborhood Watch and all documentation provided by Citi indicated that there was
only one borrower on the loan. Thus, the fiancé’s income and financial situation would not
affect the analysis.




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Additionally, using the financial information provided by the borrower, Citi calculated that the
borrower had positive monthly residual income. Finally, Citi did not document independent
verification of the borrower’s fixed monthly expenses.


Sample 51
Claim amount: $72,671
Oldest unpaid installment: 09/01/2010
Closing date of preforeclosure sale: 11/18/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
Citi stated that the hardship reason was “Unemployment.” “Remarks - As of July 23rd I do not
have employment.” The borrower said, “In May of 2010 I made the decision to move out of the
United States and relocate to Abu Dhabi for a much needed educational program. As of July
23rd I do not have employment in the United States as my employment with Dekalb County
school systems was terminated. I financially cannot afford to maintain my home in the United
States and maintain my basic living expenses in Abu Dhabi. Dekalb County Georgia has a
tremendous crime rate so the negative home market value has become even more severe in this
county in the last 3 years than the nationwide average. I do not want to leave my home vacant
and risk the possibility of vandalism as is common in this area.” Neither Citi nor the borrower
stated that the termination of employment was involuntary; moreover, the borrower’s letter
seemed to imply that her employment with Dekalb County was terminated after she decided to
move out of the country.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $4,810 and monthly expenses of
$4,651.66, resulting in monthly surplus income of $158.34. The borrower-provided earnings
statement documented monthly net income of $3,380.94; $4,814 was the amount shown as “base
pay” (gross) on the borrower’s pay stub. Using this figure to compute surplus income yielded
$(1,343.06) monthly when including all borrower-claimed expenses. We were able to verify
monthly expenses for the borrower of $1,920 using the borrower’s credit report. Independent
verification of the remaining $2,804 in monthly expenses claimed by the borrower was not
documented by Citi. Citi did not document an estimate of income or expenses after the
borrower’s claimed relocation to Abu Dhabi.

As of July 31, 2010, the borrower had $7,986 in her bank accounts, which would disqualify the
borrower from the Program.


Sample 52
Claim amount: $58,576
Oldest unpaid installment: 09/01/2010
Closing date of preforeclosure sale: 11/19/2010


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Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Income Curtail,” although the borrower did not claim loss
of income, only increased expenses. The borrower claimed, “My debt and financial obligations
have significantly increased since the initial purchase of my home. The additional cost of child-
care and living expenses that are required to raise my child have created financial strain as well
as the increased price of gas for home and auto...I have also acquired more health/life insurance
obligation since the initial purchase of my home and birth of my child.”

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The borrower claimed net monthly income of
$2,510.30 and monthly expenses of $4,759, resulting in monthly surplus income of $(2,248.70).
The borrower-provided earnings statements documented net monthly income of $2,717.53 per
month. We were able to verify monthly expenses for the borrower of $2,168 using the
borrower’s credit report. Independent verification of the remaining $2,591 in monthly expenses
was not documented by Citi.


Sample 53
Claim amount: $110,333
Oldest unpaid installment: 09/01/2010
Closing date of preforeclosure sale: 11/19/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower claimed that she was unable to continue to live in the property and explained the
circumstances that led her to seek the subject FHA loan, adding that her son had experienced
health and legal issues that added to her financial burden. Citi did not document verification of
these expenses. The borrower did not claim that she was unable to pay her mortgage, rather that
“if anything else happens, I honest don’t know what I’ll do.” She stated, “I do make regular
payments, above the minimum.” Citi classified the hardship reason as “Income Curtail” but did
not document verification of a reduction in income.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, including $747 for insurance and $481 for
medical expenses, it did not satisfy the requirement of a comprehensive review of the borrower’s
finances. The calculation of surplus income provided by Citi indicated that the borrower had
monthly income of $5,758 and monthly expenses of $4,908.78, resulting in monthly surplus
income of $849.22. The borrower-provided pay stubs documented average net monthly income
of $5,987.05. In the hardship letter, the borrower stated that she was self-employed, making
salary and earnings draws somewhat variable. Citi did not document income information, such
as profit and loss statements, for the business. We were able to verify monthly expenses for the
borrower of $2,795 using the borrower’s credit report; independent verification of the remaining


                                                94
$2,113 in monthly expenses was not documented by Citi. The pay stubs provided by the
borrower documented net income greater than expenses claimed by the borrower.


Sample 54
Claim amount: $107,406
Oldest unpaid installment: 10/01/2010
Closing date of preforeclosure sale: 11/24/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrower suffered an adverse and unavoidable financial situation due to the following
circumstances: “In July 2008 we experienced a job loss since then I have secured employment
but I had to accept a much lower paying position to provide for my family with cost of living of
expenses and a new baby we are no longer able to keep sustaining this style of living.” The
borrower-supplied Federal tax returns documented adjusted gross income of $79,846 and
$98,031 for 2009 and 2008, respectively. These amount indicated an $18,185 decrease in total
income from 2008 to 2009.

Citi did not maintain supporting documentation to demonstrate independent verification of the
borrower-supplied financial records, thus it did not complete the required comprehensive review
of the borrower’s income and expenses. The calculation of surplus income provided by Citi
indicated that the borrower had monthly income of $3,850 and monthly expenses of $5,531.37,
resulting in monthly surplus income of $(1,681.37). The borrower-provided earnings statements
documented net monthly income of $5,512.52. We were able to verify monthly expenses for the
borrower of $2,928 using the borrower’s credit report. Independent verification of the remaining
$2,603 in monthly expenses, including $1,190 in child care expenses and $236 for “other,” was
not documented by Citi. The borrower had negative residual income of $18.85 when calculated
using the borrowers’ stated expenses and income supported by the pay stubs.

The borrower’s most recent bank statements for period ending March 15, 2010, indicated that the
borrower had cash assets totaling $8,056.19, which would disqualify the borrower from the
Program.


Sample 55
Claim amount: $77,218
Oldest unpaid installment: 11/01/2010
Closing date of preforeclosure sale: 12/02/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It stated that the hardship reason was “Income Curtail.” The borrower claimed, “Dennis has
been told that once the job he is on currently finishes, they do not have anywhere to put him.
They have no work. The current job should finish sometime in July; Dennis will then be out of
work...Mary Jo works in radiology...Her position has been transferred to Ft. Myers. We were


                                                95
hoping to sell the house and move to Ft. Myers.” Citi did not document independent
verification of a reduction in income or the transfer.

In addition, because Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower’s reported expenses, it did not satisfy the requirement of a
comprehensive review of the borrower’s finances. The borrower claimed net monthly income of
$7,306 and monthly expenses of $8,541, resulting in monthly surplus income of $(1,235). The
borrower-provided earnings statements documented net monthly income of $7,921.77 per month.
We were able to verify monthly expenses for the borrower of $2,136 using the borrower’s credit
report. Independent verification of the remaining $6,405 in monthly expenses, including $1,600
per month claimed for rent and $581 per month in auto loans not shown on the credit report, was
not documented by Citi.


Sample 56
Claim amount: $92,315
Oldest unpaid installment: 11/01/2010
Closing date of preforeclosure sale: 12/03/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower claimed inability to meet the loan obligation on a long-term basis for the following
reasons: “I relocated to Cleveland OH in March 2010 for employment reasons and have taken
on additional expenses including new rent payment and unemployed spouse’s living expenses
...” Citi listed as the hardship reason, “Other,” and added the following remarks: “moved for
work, cannot afford mortgage and rent.” Citi did not document verification that this was an
involuntary change of employment.

In addition, Citi did not maintain supporting documentation to demonstrate independent
verification of the borrower-supplied financial records, thus it did not complete the required
comprehensive review of the borrower’s finances. The calculation of surplus income provided
by Citi indicated that the borrower had monthly income of $6,600 and monthly expenses of
$8,483.70, resulting in monthly surplus income of $(1,883.70). The borrower-provided pay
stubs documented net monthly income of $6,828.15. We were able to verify monthly expenses
for the borrower of $3,256 using the borrower’s credit report. Independent verification of the
remaining $5,228 in monthly expenses was not documented by Citi.


Sample 57
Claim amount: $25,057
Oldest unpaid installment: 01/01/2010
Closing date of preforeclosure sale: 03/01/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.




                                                96
The borrowers qualified for the Program due to divorce according to their hardship letter,
substantiated by a New Hampshire notice of domestic relations structuring conference found in
the file. The borrowers were presumably facing “imminent default” following the divorce.

Citi did not document a full financial analysis of each borrower individually to determine
whether either could keep the home after divorcing. According to the file, the borrowers had
combined residual monthly income of $728. Additionally, Citi did not document an analysis of
the utility, medical, insurance, car, or groceries and toiletries expenses totaling $2,651 submitted
by the borrowers.


Sample 58
Claim amount: $41,554
Oldest unpaid installment: 12/1/2009
Closing date of preforeclosure sale: 2/11/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower claimed inability to keep up with payments due to a change in jobs and having to
move across the State; however, there was no documentation indicating that the separation from
her employment was involuntary. Therefore, it was not established that this was an unavoidable
financial situation.

In addition, Citi did not maintain supporting documentation to demonstrate that a comprehensive
review of the borrower’s financial records was completed. According to the borrower-supplied
income and expenses information, she earned $3,500 monthly and had $5,145 in expenses. The
borrower’s pay stubs supported net income of $3,891 per month. However, Citi did not
document an analysis of $395 in car expenses, $104 in lawn care, $397 in utilities, $69 in life
insurance, $130 in entertainment, $100 in pet care, $900 in a tithe, $100 in clothing, $50 in gifts,
or $500 in groceries and toiletries claimed by the borrower. Citi did not document verification of
the $500 per month in rent claimed by the borrower. It did not include a proper, fully
documented analysis of net surplus income.

Additionally, while not listed on the loan, the borrower’s husband was an account holder on the
bank statements indicating that the borrower’s monthly expenses may have included his
expenses while his income was not considered.


Sample 59
Claim amount: $17,730
Oldest unpaid installment: 4/1/2010
Closing date of preforeclosure sale: 5/20/2010

Citi did not properly determine that this borrower was eligible to participate in the program.




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Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
It was stated in the workout solutions worksheet included in the file that the borrower’s reason
for hardship was excessive obligations, and in a request for variance from HUD, Citi stated that
the borrower had a reduction in income. This information was not verified in the file.

In addition, Citi did not maintain supporting documentation to demonstrate that a comprehensive
review of the borrower’s financial records was completed. It used borrower income of $0 and
expenses of $3,690 in its analysis. The borrower’s pay stubs supported net income of $3,095 for
the month. However, Citi did not document an analysis of $3,690 in monthly expenses reported.
The credit report supported monthly expenses of $1,560. Citi did not include a proper, fully
documented analysis of net surplus income.


Sample 60
Claim amount: $68,476
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 04/9/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrower claimed that she experienced an unavoidable and adverse financial situation due to
“the decline of my husband’s revenue in a commission only sales position”; the birth of a child,
resulting in the need for child care; and a reduction in her income. The borrower claimed that as
a result of the financial situation, the family relocated. A decline in the household’s income was
not substantiated as the husband’s current income was not documented.

Citi did not maintain supporting documentation to demonstrate that a comprehensive review of
the borrower’s financial records was completed. The borrower-supplied monthly income and
expense worksheet listed income of $3,276 and monthly expenses totaling $4,157 including the
monthly mortgage payment. The wife’s pay stubs supported net income of $2,186 for the month
at her Idaho employment. The hardship letter stated that the wife received a job offer in
Sacramento, CA, requiring the family to relocate; no income information for the new employer
was provided. The hardship letter also stated that the husband was working, but Citi did not
obtain pay stubs for him. Further, Citi did not document verification of the expenses listed by
the borrower. While our review of the credit report and bank statements in the file showed
$1,674 of the expenses to be supported, we were unable to verify the remaining $2,483.

Finally, the borrower was not eligible for participation in the Program as the borrower had liquid
assets of $13,701, almost 12 monthly mortgage payments, according to bank statements included
in the file.


Sample 61
Claim amount: $25,532
Oldest unpaid installment: 10/1/2010
Closing date of preforeclosure sale: 11/29/2010



                                                 98
Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrower claimed an adverse financial event that qualified for the Program. The borrower
claimed that she was told “I would have to transfer to another area or lose my job with the State
of Michigan.” A bank statement and Internal Revenue Service Forms W-2 indicated that the
borrower moved from Ithaca, MI, to Gaylord, MI, a distance of approximately 130 miles, while
maintaining employment with the State of Michigan. The borrower stated, “We were not
prepared to take on two house payments.”

Citi did not maintain supporting documentation to demonstrate that a comprehensive review of
the borrower’s financial records was completed. According to the borrower-supplied income
and expenses information, the borrower earned $4,662 monthly and had $4,979 in expenses. The
borrower’s bank statement supported net income of $4,982 for the month. Although our analysis
of the borrower’s credit report and bank statement supports monthly expenses of $3,355, Citi did
not include a proper, fully documented analysis of the remaining $1,627 in expenses to
determine whether the borrower had net surplus income.


Sample 62
Claim amount: 15,023
Oldest unpaid installment: 7/1/2010
Closing date of preforeclosure sale: 8/31/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrowers.
Therefore, it should not have made the Program available to these borrowers.

In addition, Citi did not properly verify the expenses on the financial analysis and did not
disqualify the borrowers from the Program when the financial analysis showed surplus income
and assets. The borrowers claimed that they were not able to continue to make two mortgage
payments. A second mortgage payment was not listed on the borrowers’ credit report and did
not appear to be otherwise verified. Also, Citi did not document an analysis of the borrowers’
other expenses not included on the credit report totaling $2,125. The financial analysis included
with the file indicated that the borrowers had surplus income even when including both
mortgages and the other unverified expenses. Citi did not maintain supporting documentation to
demonstrate that a comprehensive review of the borrowers’ financial records was completed.


Sample 63
Claim amount: $26,621
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 04/23/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.




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Citi did not document an adverse and unavoidable financial situation suffered by the borrowers.
The Citi workout solutions worksheet claimed a hardship of unemployment. Employment
information was not provided for the borrower, and the coborrowers had not had a change in
employment status.

Also, Citi’s documentation did not indicate the total investments held by the coborrowers;
however, significant dividend and interest income was included on their 2007 and 2008 tax
returns. According to tax returns in 2008, $10,373 was earned as wages with the balance of the
income in 2007 and 2008 being generated by investments; no documentation related to the
investment income or assets was included in the file.

In addition, Citi did not maintain supporting documentation to demonstrate that a comprehensive
review of the borrower’s financial records was completed. According to the coborrower-
supplied income and expenses information, the borrower had $0 income, and the coborrowers
earned $625 monthly and had $5,919 in expenses. Pay stubs or tax returns were not included for
the borrower. The coborrowers’ tax returns documented average adjusted gross income of
$75,764 per year for 2007 and 2008. Further, Citi did not document an analysis of $525 in
maintenance and homeowner association fees, $360 in utilities expenses, $40 in telephone
expenses, $1,927 in insurance expenses, $60 in medical expenses, $160 in car expenses, or $500
in groceries and toiletries expenses claimed by the coborrowers.

Finally, one coborrower made a payment for March 2010, but Citi informed her that the loan
must be 31 days delinquent before the preforeclosure sale could close and that Citi could not stop
the payment but that it would be much easier for the borrower to stop payment through her bank.
The borrower then stopped payment on the check so the payment was missed, and the loan was
delinquent so the sale could close.


Sample 64
Claim amount: $27,269
Oldest unpaid installment: 5/1/2010
Closing date of preforeclosure sale: 6/1/2010

The borrower claimed an adverse financial event that qualified for the Program. The stated
hardship was the death of her husband. The hardship was verified by the payment of Social
Security dependent benefits to the borrower and a note on the property’s title stating
“Termination of Decedent’s Property Interest Dated 06/17/2008.”

Citi did not maintain supporting documentation to demonstrate that a comprehensive review of
the borrower’s financial records was completed. According to the borrower-supplied income
and expenses information, she had income of $1,690 monthly and $1,991 in expenses. The
borrower’s bank statement and a letter from the Social Security Administration indicated
monthly income of $1,049. Our analysis of the borrower’s credit report and bank statement
supported monthly expenses of $1,277. This total did not include monthly auto expenses,
groceries, toiletries, and most household utilities including water, gas, electricity, sewer, and
trash. Based on this analysis, there was sufficient evidence that the borrower’s expenses
exceeded her income, verifying that this borrower qualified for the Program.


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Sample 65
Claim amount: $20,498
Oldest unpaid installment: 8/1/2010
Closing date of preforeclosure sale: 10/27/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

Citi did not document an adverse and unavoidable financial situation suffered by the borrower.
The borrower chose to move from the property. The borrower claimed that his job “was not
bringing in enough income to make the ends meet. I was forced to find work in the Dallas
market in order to increase my income, but because the commute did not make sense, I was then
forced to move to the Dallas area.” However, there was no documentation showing that he lost
his job or his income declined. Based on the tax returns and pay stubs provided, the borrower
maintained a consistent income after he chose to move from the mortgaged property, which was
located approximately 70 miles from the Dallas area.

In addition, Citi did not maintain supporting documentation to demonstrate that a comprehensive
review of the borrower’s financial records was completed. According to the borrower-supplied
income and expenses information, he earned $2,000 monthly and had $3,879 in expenses. The
borrower’s pay stubs supported net income of $2,058 per month. However, Citi did not
document an analysis of $600 in car expenses or $400 in groceries and toiletries claimed by the
borrower. Citi did not document verification of the $750 rent claimed by the borrower. In
addition, the borrower’s spouse’s income was not reported since she was not a coborrower, but
her expenses were included in the analysis. The expenses includes two car payments totaling
$745 and car insurance totaling $189 for both spouses. Citi did not include a proper, fully
documented analysis of net surplus income.


Sample 66
Claim amount: $74,392
Oldest unpaid installment: 3/1/2010
Closing date of preforeclosure sale: 4/2/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The Citi workout solutions worksheet claimed a hardship of relocation for work. Employment
information included in the file indicated that one borrower did have a change in employment
and worked in Duluth, MN, while the other one worked in St. Paul, MN. It could not be
determined from the information provided whether this was a voluntary move and, therefore,
avoidable.

In addition, Citi did not maintain supporting documentation to demonstrate that a comprehensive
review of the borrowers’ financial records was completed. According to the borrower-supplied
income and expenses information, they had $3,178 in expenses. The Citi workout solution
worksheet listed expenses of $4,605 and income of $4,246. The borrowers’ pay stubs supported


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monthly net income of $3,950. Although our analysis of the borrowers’ credit report supported
monthly expenses of $2,492, Citi did not include a proper, fully documented analysis of the
remaining $2,113 in expenses to determine whether the borrowers had net surplus income.

Additionally, the bank statement showed a balance of nearly $5,400. Borrowers with assets are
not eligible for the preforeclosure sale option.


Sample 67
Claim amount: $53,964
Oldest unpaid installment: 02/01/2010
Closing date of preforeclosure sale: 03/26/2010

Citi did not properly determine that these borrowers were eligible to participate in the program.

The borrowers got divorced, which qualified as an adverse and unavoidable financial situation.

Citi did not maintain supporting documentation to demonstrate that a comprehensive review of
the borrowers’ financial records was completed. The borrowers’ reported net income was
$4,814 monthly, while the recent pay stubs provided showed net income of $5,169. The
borrowers reported monthly expenses of $4,872. However, Citi did not document an analysis of
$314 in utilities expenses, $120 in medical expenses, $510 in car expenses, or $508 in groceries
and toiletries expenses claimed by the borrowers. Additionally, there were significant
discrepancies between amounts claimed and justified by the credit report and bank statements for
other loans, credit cards, telephone, and insurance. Because there was a third account holder
listed on the bank statements, charges found on the bank statement were not necessarily
indicative of only the borrowers’ expenses. Even including all claimed but unverified expenses,
the borrowers would have had surplus income. Citi’s analysis also showed that the borrowers
had surplus income. Citi should have analyzed the income and expenses of the borrowers
individually to determine whether they each had negative surplus income after the divorce.


Sample 68
Claim amount: $50,266
Oldest unpaid installment: 03/01/2010
Closing date of preforeclosure sale: 04/20/2010

Citi did not properly determine that this borrower was eligible to participate in the program.

The borrower did not qualify for the Program. Citi did not document an adverse and
unavoidable financial situation suffered by the borrower; the borrower stated, “I am not behind
in my payments they are current and have always been good. I am going to have a baby in
August and I am in need of additional space. There is no equity in the home to allow a build out,
thus I must sell...The circumstances surrounding the loss of value of my home are not my fault.
Thus it has put me in a situation that has disabled my ability to expand within this current home.”




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In addition, Citi did not maintain supporting documentation to demonstrate that a comprehensive
review of the borrower’s financial records was completed. According to the borrower-supplied
income and expenses information, she earned $2,468 monthly (net) plus $350 in other income
and had $3,643 in expenses. The borrower’s pay stubs supported net income of $2,694 for the
month. Citi did not verify the $350 in other income, which would have potentially brought her
monthly income to $3,044. Further, Citi did not document an analysis of $150 in medical
expenses, $300 in child and dependent care expenses, $100 in car expenses, $500 in groceries
and toiletries expenses, or $150 in “childs lessons/home warranty” expenses claimed by the
borrower.




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