[ by Melanie Gretchen ] Citigroup senior manager Sherry Hunt wasn't looking for a fight.  The Michigan native who won $31 million from the firm started processing home loans at a small bank in Alaska in 1975.  As vice president of the mortgage unit 30 years later, Ms. Hunt found herself embroiled in the housing bubble – which the firm didn't want her to help burst. Her Duties: To Herself and the Firm. In November 2004, Ms. Hunt, then 55, supervised 65 mortgage underwriters at CitiMortgage Inc.'s headquarters in O'Fallon, Missouri.  In her role, she supervised 65 mortgage underwriters, toward protecting Citigroup from fraud and bad investments. Loans. Ms. Hunt inspected loans Citi wanted to buy from outside brokers and lenders to see whether they met the bank’s standards.  The mortgages had to have properly signed paperwork, verifiable borrower income, and realistic appraisals.  Then, Citi would vouch for the quality of these loans when it sold them to investors or approved them for government mortgage insurance. At one point, however, investor demand was so high for mortgages packaged into securities that the bank couldn’t process them fast enough.  As the bank told investors that the bank would stand behind the mortgages if borrowers quit paying, by 2006 the bank was buying mortgages from outside lenders with doctored tax forms, phony appraisals, and missing signatures, she said. By 2006, Ms. Hunt’s team was processing $50 billion in loans that Citi-Mortgage bought from hundreds of mortgage companies. Because her unit couldn’t possibly review them all, they checked a sample.  When a mortgage didn't meet federal standards – which could be any error ranging from an unsigned document to a false income statement or a hyped-up appraisal – her team labeled the loan as defective. Findings Rejected. It was Hunt’s job to identify these defects, which she did, in regular reports to her bosses.  Before, during, and after the financial crisis into 2012, executive buried her findings.  In March 2011, more than 2 years after Citigroup took $45 billion in bailouts from the U.S. government and billions more from the Federal Reserve, Jeffery Polkinghorne, an O’Fallon executive in charge of loan quality, asked Hunt and a colleague to stay in a conference room after a meeting. The number of loans classified as defective would have to fall, Ms. Hunt recalled him telling them, or it would be "your asses on the line." "All a dishonest person had to do was change the reports to make things look better than they were.  I wouldn't play along." Taking a Stand. On 3/29/11, Hunt walked into CitiMortgage’s human resources department in O’Fallon and told them everything: how the bank had been routinely buying and selling bad mortgages for years, how the fraud unit wasn’t doing its job, and how the quality-control people were being pressured to change their ratings.  In August 2011,  she took her employer to court, 5 months after the meeting with Polkinghorne, Hunt sued Citigroup in Manhattan federal court, accusing its home-loan division of systematically violating U.S. mortgage regulations. She was joined by the U.S. Justice Department in January.  Citigroup didn’t dispute any of Hunt’s facts; it didn’t mount a defense in public or in court.  On 2/15/12, the bank agreed to pay $158.3 million to the U.S. government to settle the case.  Citigroup admitted approving loans for government insurance that didn’t qualify under Federal Housing Administration rules.  Prosecutors kept open the possibility of bringing criminal charges, without specifying targets. "I want people to know they can come forward,” she says. “If I can do it, they can do it. We need to change what’s wrong in our own backyards, and that’s how we end up changing the big things." For further details, go to [Bloomberg, 5/31/12].