Citigroup and the Justice Department have reached a $7 billion agreement to settle a federal investigation related to faulty mortgage securities that the bank sold leading to the 2008 financial crisis.
About $2.5 billion of the settlement is supposed to be used to offer relief to mortgage borrowers, according to the Justice Department. The relief would include:
- Loan modification for underwater borrowers.
- Refinancing for distressed borrowers.
- Down payment and closing cost assistance to homebuyers.
- Donations to organization assisting communities in redevelopment and affordable rental house for low-income families in high-cost areas.
They'll figure out the details while you pay
Citi has not specified who would be eligible for assistance and when consumers would be notified. The lender says in the "coming weeks and months" it will evaluate who is eligible under the settlement programs and will contact the borrowers.
"The assistance available as a result of the settlement will depend on each individual situation," says a Citi spokeswoman. "Eligibility criteria and specific solutions are still being determined. In the meantime, it is important for customers to continue to make payments in a way consistent with their loan agreements."
Most of the money, $4 billion, will be paid to the Justice Department as a civil penalty. The rest will go to other entities, including the states of California, New York, Illinois, Massachusetts and Delaware.
Bank lied to mortgage investors
According to Attorney General Eric Holder, “The bank's activities contributed mightily to the financial crisis that devastated our economy in 2008."
The settlement says Citigroup made representations to mortgage investors about the quality of the loans it bundled to sell to investors. The bank sold loans the loans knowing they were problematic, according to the settlement's statement of facts.
"On a number of occasions, Citigroup employees learned that significant percentages of the mortgage loans reviewed in due diligence had material defects," according to the DOJ's news release. "In one instance, a Citigroup trader stated in an internal email that he 'went through the Diligence Reports and think(s) (they) should start praying … (he) would not be surprised if half of these loans went down. … It’s amazing that some of these loans were closed at all.'”
The DOJ's investigation involved residential mortgage-backed securities issued or underwritten by Citigroup in 2006 and 2007.
How the settlement will be implemented
An independent monitor will be appointed to oversee the settlement. If Citigroup fails to live up to its agreement by the end of 2018, it must pay liquidated damages in the amount of the shortfall to NeighborWorks America, a nonprofit organization.
What do you think of the settlement?
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