Sherry Hunt and Citibank’s Mortgage Case Study

Mariano Bonilla, Shira Cohen, Liis Halisk, Chen Su

1)
The principal work motivation of Sherry Hunt is her love for the mortgage business,
as she stated that she was thrilled to help people purchase their first home or refinance
their debt so they can invest in their kids. For her, the process of acknowledging each
person’s life and their individual differences was fascinating, by analyzing the data
that people submitted to get a mortgage.

The moral values of Sherry are tested, as the requirements of the company from
someone in her work position conflicted with her personal ethics. On one side, the
need to fulfill the goals pursued by the company and also keep a job, within a
shrinking job market for someone with her qualifications, contrasted with her moral
beliefs of doing things the right way and within the law. Even through this dilemma,
we would state that she keeps true to her personal ethics and keeps trying to get the
board and regulatory entities to acknowledge the illegal issues inside the company.

Her background also implies that she’s a hardworking person as she has started her
career in small companies and kept working her way up the corporate ladder, until she
got hired in some of the top banks in the United States,

Finally, another value that is strongly portrayed by Sherry Hunt is bravery, as she and
her boss were the only ones that raised their voices about the defects they found and
their possible fraud implications. Even though the company tried to minimize her
exposure and even stripped her of much of her team (From 65 to 1), she still kept
trying to report this incident to the board and also the corresponding authorities.

As a group, we share that it’s important to be ethical and have moral values as
professionals, as it helps us to differentiate what’s right or wrong in a work
environment. This moral compass is a guideline in the decision-making process, as it
takes into account the individual employee’s best interest and also the impact of the
decision in a holistic way, and helps us choose the best alternative.

It’s very important for a company to encourage employees to live and nurture their
values in the company, as it helps to keep them engaged in their work and with the
company goals, as well as it would help identify activities that can be harmful for
business. The encouragement of values also helps the empowering of the employees
leading to an increase in productivity and a better morality sense with the company.

2)
On March 22, 2011, an executive 3 levels above Sherry asked her to fudge the report,
which pushed Sherry beyond her moral limit. Back in 2004, Sherry had informed her
direct supervisor of the defects in her work, but she was ignored. Fortunately, the
Chief Underwriter of the REL business at the time sided with Sherry, as they were
Sherry Hunt and Citibank’s Mortgage Case Study
Mariano Bonilla, Shira Cohen, Liis Halisk, Chen Su

both growing increasingly concerned over the defects. The problems could be seen as
financial fraud, which is illegal and would reflect back on Sherry. Citi had
restructured those mortgages as financial securities and then resold them to GSEs and
other investors as free defect assets. Although the executives recognized the problem,
they chose to ignore it as they put more emphasis on market share and profit growth
than risk control and merits, which was also a cause of the 2008 financial crises.

One could say there have been systematic problems at Citi that led to the dysfunction
of the risk control team where Sherry was placed. Furthermore, traditional ways of
problem reporting to top levels were ineffective. All things considered and the
difficulties in the job market, Sherry was desperate to either find a solution or find a
new job opportunity at the VP level outside of the company. As Sherry has been
working in the risk control position and it’s well known that processes aren’t
followed, covering the fraud would have serious legal consequences in future. She
needs to find a way to protect herself against the many years of company misconduct.

We believe that Sherry is a person of integrity, who complied with her duties and
didn’t bend to the pressures given by her superiors. Firstly, we would recommend that
Sherry request an in person meeting with the board and report the existing defects and
fraud within the company. Reporting directly to Sherry’s supervisors could be
challenging, as they have been complicit in the illegal conduct and were very resistant
to Sherry and Bowen’s previous warnings. There is a greater possibility for Citi’s
management to correct their misconduct with guidance from the board. Sherry’s
strong moral beliefs have pushed her to take on the responsibility to whistle-blow the
company. Although Sherry is an employee of Citi, she feels that she needs to act with
the best interest of all stakeholders in mind, including small investors, investors of the
fraud financial product, and even the whole financial system.

Secondly, we would recommend that a greater focus be placed on these defects with a
creation of a temporary new team, led by Sherry. The goal would be to discover and
undo all of the incorrect approvals that have been passed within the last few years.
However, it’s critical to launch a training program for loan officers in order to ensure
that the same mistakes wouldn’t continue to occur. This training needs to be embodied
by all members of the Citi team, starting from the executives. In addition, training on
the company policy and procedures is necessary to reinforce the importance of the
change in culture. The consequences of not following procedure needs to be clearly
outlined in order for all employees to understand the severity of the offense. It’s
critical that all employees support the change, otherwise Citi would find themselves in
the same situation if they don’t attack the problem from within. By creating clear
goals and timelines with the board and therefor the executives, Sherry will be able to
determine how to best proceed. If the company doesn’t take significant action,
Sherry’s next option would be to formally report the behavior.
Sherry Hunt and Citibank’s Mortgage Case Study
Mariano Bonilla, Shira Cohen, Liis Halisk, Chen Su

Although she had anonymously reported Citi’s fraud via HUD and FBI’s website, the
better solution would be to personally report the incident to SEC and FCIC, which are
the public entities that oversee the financial market. As she starts to study the Dodd-
Frank ACT and compile her evidence of Citi’s fraudulent behavior, she must ensure to
cover her bases without drawing any attention from the company. Apart from openly
reporting to SEC, she also needs to actively catch the attention of the financial market
through media. The more exposure, the safer she could be. Additionally, as a
whistleblower she would be protected by US federal law and the Supreme Court.
While this is Sherry’s last resort, it needs to be done correctly to guarantee no risk of
further legal action against her.

3)
Sherry Hunt meets calls a meeting with the board of directors

Board: Hi Sherry, welcome. Could you please explain to us why you’ve called this
meeting?

Sherry: Thank you all for gathering here today. Following my meeting with Jeffrey
Polkinghorne yesterday I was asked to amend the report showing that there was a
7.25% defect rate as compared to the 5% goal. I disagree with altering the reports and
wanted to discuss potential options to move forward. It’s shocking that this is the
preferred approach that executives are taking in a financial institution. The company
culture is more interested in covering up fraud rather than correcting it.

Board member: We have in no way encouraged unethical behavior within the

company. It’s very important for the underwriting department to hit these numbers
and your team constantly falls short of the targets. It seems like there’s a problem
within your team, not the company culture.

Sherry: My team is responsible for identifying the existing defects, however, despite
my team’s attempts, these defects are overruled and passed through the system.
Previous management and loan officers incorrectly approve mortgages for individuals
who are unable to meet the criteria and demonstrate minimum proof of income. Citi is
in the position it’s currently in because it has been disregarding the approval process
for many years, and has been aware of these offenses since Connie was removed from
her position in 2006. Even after the removal of Connie, executives haven’t altered
their behaviors and we’re finding ourselves in the same situation years later.

Board member: Since the board was made aware of this issue in 2006, we’ve put
processes in place to ensure the situation doesn’t repeat itself. Are you telling me that
this is an ongoing issue because our numbers are reflecting a positive change?

Sherry: My previous manager, Robert Bowen, and I were working together to

Sherry Hunt and Citibank’s Mortgage Case Study
Mariano Bonilla, Shira Cohen, Liis Halisk, Chen Su

uncover the root causes of these incorrect approvals. However, all of our attempts to
rectify the situation and to bring it light have been met with resistance and ultimately
Bowen’s dismissal. In 2009 I uncovered 1,000 loans that not only had defects, but
also fraud, and these cases were left unreported to the FHA. Our internal fraud
prevention and investigation group didn’t pursue any further action.

Board member: These are serious allegations Sherry, do you have any evidence of
these offenses?

Sherry: I can forward you the emails that I’ve sent in attempts to correct these defects
if you’d like to see them, or I can compile a report with my findings.

Board member: Great, that would be very helpful.

Sherry: From my point of view, I see this as a serious risk to not only the company’s
standing, but its reputation. I can’t continue to ignore these obvious attempts to
commit fraud within the process. I would suggest we use our resources to create a
team to investigate these longstanding defects and rectify them once and for all.
Additionally, all loan officers require training to ensure that processes and policies are
followed. We need a system in place to report errors and any deviations from the
process. These changes need to be enforced by the executives in charge of their
respective teams.

Board member: Thank you for your suggestion, we can agree that this requires
immediate action. This issue is now our top priority. We will focus on the training
efforts of the executives and ensure it’s passed down to their teams. If a project team
were to be formed, how quickly could you resolve the defects?

Sherry: Seeing as there is such a significant amount of defects, I would suggest I

begin immediately and report bi-weekly progress to the board.

Board member: Does everyone agree with the proposed approach?

All board members approved Sherry’s suggestions. This provided her with a clear
timeline of when changes should be completed. She has also decided that if no change
occurs, she will move forward with reporting Citi to the SEC and FCIC.