The Office of the Comptroller of the Currency announced Friday that it fined Citibank $30 million for “violations related to the holding period of other real estate owned.”
Under federal banking regulations, there is a two-year limit on banks maintaining possession of a foreclosed property. The rules stipulate that banks can apply for an annual exemption that can push their ownership of a property to as much as five years.
But after that, the bank is supposed to sell the property back into the market to prevent available housing inventory from being kept away from would-be homebuyers.
And according to the OCC, Citibank violated that rule by holding onto hundreds of foreclosures for longer than the five-year limit.
“The OCC found the bank engaged in repeated violations of the statutory holding period for OREO,” the OCC said in a statement. “These violations resulted from the bank’s deficient processes and controls in the identification and monitoring of the OREO holding period. In assessing this civil money penalty, the OCC found the bank failed to meet its commitment to implement corrective actions, resulting in additional violations.”
A quick note of explanation on the use of the term “OREO” by the OCC: Most in the housing industry refer to foreclosures as REOs, for real-estate owned, but federal regulators like the OCC and the Federal Reserve refer to them as OREO, for other real estate owned.
According to the OCC order, an investigation found more than 200 violations of the foreclosure sale time limit rule between April 4, 2017 and Aug. 14, 2019.
But, Citibank states that the problem was limited to those 200 properties.
“The maximum holding period for foreclosed properties by a national bank may not exceed five years. In some instances, we did not meet the requirement,” the bank said in a statement.
“The issue, involving approximately 200 properties, was identified in 2015 and there was no impact on our customers,” the bank continued.
“Since identifying the issue, we have strengthened controls, processes and procedures to ensure the timely disposition of these assets,” the bank added. “Most importantly, we consistently worked to ensure the responsible disposition of the properties to avoid negatively affecting the real estate market in those communities.”
As Citibank noted, the problem began in 2015. According to the OCC, in 2015, the bank found its own processes to be “deficient.” More specifically, the bank “lacked adequate policies, procedures, and processes to effectively identify and monitor the holding period for OREO assets,” the OCC said.
The OCC stated that at that time, Citibank “committed to developing and implementing corrective actions to address these deficiencies.”
But, the bank later submitted multiple requests to extend the holding period for REO properties that were “not made timely and resulted in numerous additional violations,” the OCC said.
Then, in April 2017, the OCC told Citibank that its internal controls on REOs remained “decentralized, ineffective, and inadequate.” After that, Citibank continued to submit “untimely requests” to extend the REO holding period, the OCC said.
And things didn’t get much better from there.
“Following additional efforts to correct the root cause of the continued OREO holding period violations, the Bank recommitted to implementing corrective actions by August 31, 2018,” the OCC said. “The Bank failed to meet its commitment, resulting in additional violations.”
According to the OCC, the bank has made progress in dealing the REOs in question. In fact, the regulator states that Citibank has “significantly reduced” its REO holdings in the last year.
“The OCC continues to monitor the Bank’s progress to implement the required corrective actions to attain effective policies, procedures, and processes to identify and monitor the holding period for OREO assets in compliance with the law and regulation,” the OCC stated. “As part of these efforts the Bank has, over the last twelve months, significantly reduced its inventory of OREO assets.”
According to the OCC, Citibank has already paid the penalty to the Department of the Treasury.