Ex-Citigroup exec says he warned of loan risks in '06

WASHINGTON - A former Citigroup mortgage executive Wednesday accused bank executives of violating their own risk management policies and ignoring his warnings about the coming financial crisis.

Richard Bowen told the Financial Crisis Inquiry Commission, which is investigating the roots of the crisis, that he raised concerns about mortgage risk starting in 2006. He said he sent an e-mail about it to former chairman Robert Rubin and others in November 2007.

Bowen said at the hearing he doesn't know whether anyone acted on his warnings about the bank's purchase of suspect mortgages. In testimony before the panel, he said he discovered in mid-2006 that more than 60 percent of the mortgages bought and resold by subprime subsidiary Citifinancial Mortgage didn't meet Citigroup's underwriting standards.

Bowen was a chief underwriter for the division, responsible for loans bought from other lenders. Many of these loans were bundled and sold as complex investments.

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

Bowen's testimony came on the first of three days of FCIC hearings. They are focused on high-risk mortgage lending and the way trillions of dollars in risky mortgage debt was spread through the financial system. The panel is using Citigroup as a case study because the bank was heavily involved in every stage of that process.

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

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

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

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