The Federal Reserve Bank of New York received a whistle-blower letter from a Litton Loan employee, who claims the mortgage servicer used internal procedures to deny mortgage modifications to distressed homeowners. "We are in possession of the letter and are conducting an inquiry," a N.Y. Fed spokesman told HousingWire. The letter was provided to the central bank by the Financial Times. The London-based international newspaper reports the employee's letter detailed a "denial sweep" strategy to clear the backlog of applications for loan modifications. Goldman Sachs (GS) acquired Litton Loan in 2007. The Houston-based firm services about $46.1 billion worth of U.S. mortgages. In December, Goldman announced plans to sell Litton a few months after discovering "process issues" with Litton's foreclosure procedures. The FT article said the Litton employee reviewed loans that were eligible for modification under the federal Home Affordable Modification Program, yet were denied for various reasons. The letter claims Litton employees mistakenly calculated borrower income and denied some applications. Other applications were rejected for failing to contain appropriate documents even though the necessary paperwork was entered into Litton's computer system, according to the letter under investigation by the New York Fed. A spokeswoman for Litton Loan said the company is "not commenting on this issue." When the company announced plans to participate in HAMP in August 2009, President and CEO Larry Litton said "our company has used modifications as the primary method of helping homeowners avoid foreclosure." "The company has been, and continues to be, a proponent of thoughtful and practical loan modifications that provide affordability to homeowners," Litton said then. Write to Jason Philyaw.