Ex-Citigroup executive cites warnings

Bowen said at the hearing that he does not know whether any executives acted on his warnings about the bank’s purchase of suspect mortgages.

In testimony to the Financial Crisis Inquiry Commission, Bowen 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. He was responsible for loans bought from other lenders. Many of these loans were bundled and sold as complex investments.

Citigroup disputed his account. 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 hearings by the commission. Earlier yesterday, Alan Greenspan defended his tenure as head of the Federal Reserve in the years leading up to the crisis. Greenspan disputed critics who say he kept interest rates too low for too long, encouraging risky lending.

Greenspan also hit back against criticism that the Fed failed to regulate high-risk loans to borrowers who could not 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.

“Why, in the face of all that, did you not act to contain abusive, deceptive subprime lending?’’ Angelides, a former California state treasurer, asked.

Greenspan pointed to a series of actions he said the Fed took. Angelides countered that the Fed’s actions covered only 1 percent of the subprime lending market.

“You could’ve, you should’ve, and you didn’t’’ regulate the lending activities, he said.

In his opening remarks, Greenspan blamed a litany of other parties and historical events for the meltdown but accepted no responsibility for himself or the Fed, which he led from 1987 until early 2006.

In any case, said Mark Zandi, chief economist at Moody’s Analytics, the Fed’s decision not to set national mortgage lending standards was a key factor in the housing bubble.