MISH'S Global Economic Trend Analysis

## Thursday, March 27, 2008 11:42 AM

### Dear Citigroup Customer ....

I have a friend "SK" who is a Certified Mortgage Planning Specialist in California. He has clients in existing ARMs with Citigroup. Those ARMs are about to reset and Citigroup has been sending out "Dear Customer" letters warning them of increases in loan rates.

This is where it gets interesting.

Citigroup has been warning customers of higher rates and is offering existing customers fixed rate mortgages at "special rates". The problem with the offer is the rates in question are about to reset lower, not higher. Yes I have proof.

Exhibit A

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The above document shows a letter that was sent out on March 21, 2008. The small red oval says "The rates in this example were current as of 2/27/2008".

Exhibit B

Exhibit B is simply a blowup of a portion of Exhibit A.

Key Points

1) The area at the top states "Projected Loan After Next Reset"
2) The projected rate of 2/27/2008 is 6.303%.

Exhibit C

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Exhibit C states the loan in question is based on one-year LIBOR + 2.25%

Exhibit D

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Exhibit D shows the LIBOR rate as of February 27, 2008.
Let's be generous to Citigroup and call the rate 2.85

Now let's add the index amount from Exhibit C to the base rate from Exhibit D (2.85 + 2.25) to arrive at a projected customer rate for this loan.

My math says 2.85 + 2.25 = 5.1%
Citi's math (from exhibits A and B) says 2.85 +2.25 = 6.303%

LIBOR (and therefore the projected loan rate) is even lower today.

Exhibit E

Exhibit E is from another client of "SK". It is an Email is discussing correspondence between "SK's" client and Citigroup, as well as an actual conference call between "SK", his client, and Citigroup.

Hey "SK",

Sorry for the delay and thank-you for your help with Citi.
The following is a re-cap our March 17th, 2008 correspondence with Citi,:

As a preferred customer of Citi Mortgage, we called to inquire about our options on our 3/1 arm that has a fast approaching anniversary. We received the following information.

Question 1. What happens to our loan on the anniversary? Will it go down?
Answer: It is very unlikely that it will go down. Would you like to refinance?

Question 2. If we refinance should we stick with an arm or go to a fixed mortgage?
Answer: You do not want an arm you want a fixed. We used a 15 yr. fixed as a example;

We were quoted: 15 yr fixed-5.5 with an Apr of 5.65 and a \$4400.00 fee.
We asked for a good faith FAX and she said they do not give those.
We said thank you but we are going to shop.

That is when we called you for help.

We did not know if we were tied to the Libor or the Treasury. A call was placed to Citi and after much reluctance, they reveal we were tied to the T-bill with a 2.75 pt. spread and again we received a higher percentage rate quote.

A conference call was then made between you, a Citi loan officer and myself. Again they were quoting a percentage rate higher than 4.75 which it should have been on that day. We then asked for a supervisor and we were transfer to another loan officer of the same level. When asked if he was a supervisor, he said "no" and another request was made for a supervisor and they hung up on us.

We are seriously questioning Citi Mortgage's ethical practices.
Thank you for your help. We do appreciate doing business with you.
Let's look at Q&A #1 again.

Question 1. What happens to our loan on the anniversary? Will it go down?
Answer: It is very unlikely that it will go down. Would you like to refinance?

By the way the existing rate on the loan in the Email above is 6.00%. That rate is based on the one-year treasury rate plus an index of 2.75. On March 17, the one-year T-Bill rate was 1.53 as quoted during the conference call. Let's do the math. 1.53 + 2.75 = 4.28 (rounded to the nearest higher 1/8 would be 4.375). Citigroup told the client the new rate would be above 6.00%

The above conversation, in conjunction with the documented hard evidence above, suggests a pattern deceit by Citigroup. I am wondering how many Citigroup customers have refinanced to a higher rate and payment based on inaccurate rate quotes from Citigroup mortgage specialists.

I am not a lawyer. I do not know if any of this violates truth in lending laws, fair lending practices laws, or any other laws. However, I do know this is a mess, and if I was a customer of Citigroup I would be questioning whether or not I could believe anything they say.

In the sake of fairness, if Citigroup has a different explanation for the above examples, I will post it.

Inquiring minds may wish to read Operational Risk – Improper Disclosure By Citigroup Mortgage. The article discusses a potentially serious breach of fiduciary responsibility by Citigroup, possible RESPA violations, potential violations of Reg. Z, and likely violations of internal procedures.

Anyone who feels aggrieved by the actions of Citigroup may contact http://www.consumergripes.net/

I received an Email from a lawyer who writes:

I am a lawyer. And, you don’t need to be a lawyer to KNOW fraud when you see it, and I’d say that what you describe – deliberately misquoting rates, etc. is fraud (there are two types of fraud – fraud in fact and fraud in the inducement, but we don’t have to get in to that, and you may well know the difference (and I suspect you do)).

Most law is “common sense” and if something screams “fraud” it most likely is – under whatever particular law – whether statutory law or common law.

If Citi KNOWS the rate is going lower, but says “it is most likely to go higher” and doesn’t give a straight answer, and is stupid enough to have third party witnesses listen to the misrepresentations and/or put them in writing and or have them recorded (and I assume Citi records a lot of stuff by law or company policy), then they deserve to be sued by a lot people.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com