NEW YORK (Reuters)—Citigroup Inc. has agreed to pay $158.3 million to settle U.S. civil claims that it defrauded the government into insuring thousands of risky home loans made by its CitiMortgage unit.

Wednesday's settlement resolves claims under the federal False Claims Act against the third-largest U.S. bank, and arose from a "whistle-blower" lawsuit brought by Sherry Hunt, a CitiMortgage employee in Missouri.

CitiMortgage "admits, acknowledges and accepts responsibility" for misleading the government into insuring risky home loans, according to settlement papers filed in U.S. District Court in New York. Investigators said the misconduct lasted for more than six years.

The civil fraud case is part of a crackdown by the Department of Justice against lenders it believes contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold.

Whistle-blowers can receive up to 25% of settlements reached with the government in such cases, depending on how much work they contributed. It was not immediately clear how much Ms. Hunt, a quality control manager at CitiMortgage, might recover. Neither she nor her lawyer, Finley Gibbs, responded to a request for comment.

Citigroup spokesman Mark Rodgers said the bank is pleased to settle.

"We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as robust as possible," he said.

Mr. Rodgers also said Citigroup has set aside enough money to cover the payout. The bank had said last week it was taking a $125 million aftertax charge against results for its just-completed fourth quarter in connection with mortgage litigation.

Claims brought under the False Claims Act have recovered more than $34 billion in federal and state cases since the law was amended in 1986, according to the Taxpayers Against Fraud Education Fund.

The government accused Citigroup of falsely certifying that many of its loans qualified for insurance from the Federal Housing Agency, which is part of the U.S. Department of Housing and Urban Development.

Investigators said 9,636, or more than 30%, of nearly 30,000 HUD-insured mortgage loans that CitiMortgage made or underwrote since 2004 have defaulted, costing the agency nearly $200 million in insurance claims.

"For far too long, lenders treated HUD's insurance of their mortgages like they were playing with house money," U.S. Attorney Preet Bharara in Manhattan said in a statement. "In fact, they were playing with other people's money and other people's homes."

The government also contended that even after a 2008 HUD audit found "numerous defects" in CitiMortgage's oversight of loans in default, quality control deteriorated.

It said this was in part because the unit pressured workers to encourage quality control personnel to ignore problems, rewarding them with higher salaries if they succeeded.

In January 2011, for example, CitiMortgage held a "Star Players Award" ceremony for the efforts of some workers to challenge defects reported by the quality control unit.

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The $158.3 million payout is separate from New York-based Citigroup's agreement to pay as much as $2.22 billion under last week's roughly $25 billion U.S. settlement with five big mortgage servicers over alleged foreclosure abuses.

Bank of America Corp. reached a $1 billion resolution of FHA claims as part of last week's settlement. U.S. Attorneys in Colorado, North Carolina and South Carolina were also part of the foreclosure investigation, the Justice Department said.

Last May, the government accused Deutsche Bank A.G. and its MortgageIT Inc. unit in a $1 billion False Claims Act case over misleading HUD into insuring risky mortgages.

Six months later, it filed similar charges against Houston-based Allied Home Mortgage Capital Corp., which had billed itself as the largest privately held U.S. mortgage broker.

Deutsche Bank and Allied Home have fought the charges. Andrew Levander, a lawyer for Deutsche Bank, and Bruce Alexander, a lawyer for Allied Home, did not immediately respond to requests on Wednesday for comment.

Wednesday's Citigroup settlement was approved by U.S. District Judge Victor Marrero in Manhattan, the Justice Department said.

Shares of Citigroup closed down 1.1% at $31.72 on the New York Stock Exchange.

The case is U.S. ex rel. Hunt vs. Citigroup Inc. et al., U.S. District Court, Southern District of New York, No. 11-05473.