Accounting Prof Testifies on Mortgage Meltdown
Financial Industry Veteran Offers First-Hand Lessons in Ethics
May 6, 2010
When Richard Bowen III began teaching as an adjunct professor in the UT Dallas School of Management in spring 2008, he brought 35 years' experience in banking, including executive positions in finance, credit and information technology.
Now he also is offering a glimpse behind the scenes of the troubled mortgage industry at the heart of the nation’s financial meltdown. He is guiding students through a real-life ethics lesson, relaying what he experienced while investigations of the forces behind the financial crisis continue.
Bowen testified about his employment at Citigroup in Washington on April 7 before the Financial Crisis Inquiry Commission Hearing on Subprime Lending and Securitization and Government Sponsored Enterprises.
His message two weeks later to his graduate-level Accounting for Managers class was clear: During your career, you will be faced with circumstances that will require you to take action based on your conscience and personal code of ethics.
His advice: If you find yourself in this type of situation, think it through. Don’t just act.
Bowen, who had held executive positions in finance, credit and information technology, has been an adjunct professor in the UT Dallas School of Management since 2008.
He encourages his students to discuss current events as they relate to classroom topics, and his recent testimony gave him a unique opportunity to frame current events as an ethics lesson.
The class peppered Bowen with questions as he recounted what he had discovered as business chief underwriter for correspondent lending in the Consumer Lending Group of Citigroup. Promoted to that role in early 2006, Bowen was responsible for 220 professional underwriters and annual residential mortgage production of more than $90 billion.
Tasked with assuring that mortgages purchased and later sold by Citi met the company’s credit standards, Bowen determined that as many as 60 percent of the mortgages were defective, either not meeting those credit standards or missing necessary paperwork, a huge potential risk for the company. In addition, some mortgages that his underwriters initially declined were later changed to “approved” by someone higher up in the process, practices that went against company procedure and industry standards. He issued warnings about the situation through the chain of command beginning in June 2006 and through 2007.
But on Nov. 3, 2007, on the eve of an emergency meeting by the company’s board of directors to address the consumer credit crisis and widespread media coverage of potential Citigroup losses, Bowen escalated his concerns. In an e-mail to Citigroup executive management and board members, he requested an investigation into what he called “extreme risks that existed within the consumer lending group.”
Citi has said that issues he raised were reviewed and corrected, but his testimony could provide ammunition to lawsuits accusing Citi of erasing shareholder value and misrepresenting the quality of assets that the investment bank was selling.
“There are lessons to be learned,” Bowen told his students. “As you go out into business, you will encounter circumstances you will be concerned about. You will have to make a decision with real consequences, for your family and your ability to make your mortgage payment. It will take a toll, emotionally and physically. It’s all real and not something to be taken lightly.”
It was not the first time in his lengthy career that he stepped up to identify potential problems and faced the consequences.
In the early 1980s, he was executive vice president and CFO over operations for First National Bank of Oklahoma City. He watched a rival bank grow its lending operations during the oil boom and urged restraint at his own bank. Although his attempts to limit risk drew praise from bank examiners, he was fired and the bank failed two years later.
“If you have concerns, there can be ramifications. There can and will be repercussions,” he told the class. “You need to know what the consequences are,” he emphasized.
Bowen let the students draw their own conclusions but mentioned a study that found most whistleblowers later said they would not advise others to take that action.
Bowen said he never sought to draw attention to himself with his actions.
“I’ve always cherished my anonymity, but there is no doubt in my mind that I did what I had to do,” he said.