Despite doing business with a controversial Florida law firm accused of using "robo-signers" to rubber-stamp thousands of mortgage documents, Citigroup claims it never employed such practices in the rush to foreclose on homes.
"We have not found evidence of robo-signing," John Gerspach, Citi's finance chief, told reporters this week. "We are fairly confident we have not relied on robo-signers."
But former Labor Secretary Robert Reich, a professor of public policy at UC Berkeley, doubted that Citigroup and other banks did not take shortcuts when confronted with the rising foreclosure tide.
"Citi was competing with every other mortgage lender," Reich said. "Money was cheap. Lenders were lending it out to almost anybody who could stand up straight and doing it in an extraordinarily rapid and careless way. I would be very surprised if Citi's practices were substantially different from everyone else's."
On a call with reporters, CFO Gerspach said: "Regarding foreclosures, as we have been saying publicly, we continuously view our document handling procedures and we believe the integrity of Citi's foreclosure process is sound. While we use external attorneys to prepare documents, each package is reviewed by a Citi employee who verifies the information and signs the foreclosure affidavit in the presence of a notary. When errors are found, the documents are returned to the attorney who revises the package and resubmits the documents for review."
"We have intensified our ongoing process reviews and ... have not identified any systemic issues," he added.
Investors sold off bank stocks this week on worries that lenders may be forced to buy back large parcels of mortgages that were peddled to investors based on faulty or missing documents or misrepresentations.
Bloomberg News reported Wednesday that Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit.
If successful such a move could force other lenders to follow suit. Citibank's exposure to bad mortgages could be in the $22 billion to $35 billion range if the bank were to be forced to repurchase the securities, according to analyst estimates.
Most of the possible losses would be separate from the document scandal, instead relating to alleged misrepresentations made when the loans were packaged and sold to investors.
Citigroup, which is one-fourth owned by the U.S. government, suffered huge losses during the global financial crisis of 2008 and received a $45 billion bailout, of which it still owes about $12 billion.
It's unclear what, if anything, the document problems will end up costing the banks. But a former paralegal with David J. Stern's firm, Florida's largest foreclosure law practice, has told state investigators that the firm routinely signed court paperwork without reading it, misdated records, forged signatures and passed around notary stamps in the rush to foreclose on homes.
"This is just the beginning really," the paralegal, Tammie Lou Kapusta, told ABCNews.com. "It's the tip of an extreme iceberg."