Citigroup announced today that it has agreed to pay $7 billion to the Department of Justice, several state attorneys general, and the Federal Deposit Insurance Corporation in a landmark settlement to resolve a federal investigation into the sale of subprime mortgages. The misrepresentation of those securities was a contributing factor to the financial crisis.
"Citi acknowledges that, over the course of numerous transactions, the bank put together billions of dollars of mortgage-bond deals with loans it knew were defective, and then misrepresented the quality of those mortgage-bond deals to investors who purchased them," Associate Attorney General Tony West said in a prepared statement.
In a separate statement, Citigroup's Chief Executive Officer Michael Corbat said the settlement, reached over the weekend, resolves all “actual and potential civil claims” by the Department of Justice, five state attorneys general, and the FDIC relating to residential mortgage-backed securities and collateralized debt obligations issued, structured, or underwritten by Citi between 2003 and 2008.
Under terms of the settlement, Citigroup agreed to pay $4 billion in civil monetary penalties to the Justice Department, and $500 million in compensatory damages to state attorneys' general and the FDIC. Citigroup will pay the remaining $2.5 billion in the form of relief to aid consumers harmed by its conduct.
“We believe that this settlement is in the best interests of our shareholders, and allows us to move forward and to focus on the future, not the past,” Corbat said.
Under the settlement agreement, Citi also has agreed to the following measures:
• Favorable refinancing to lower interest rates for those borrowers who have responsibly kept current on their mortgage payments;
• Significant investments in community development and neighborhood stabilization efforts, including investments in housing counseling and related legal aid; and
• Hundreds of millions of dollars in subordinate financing for the construction of affordable rental housing in high cost-of-living areas.
Citigroup is now the second big Wall Street bank to resolve a federal probe into its mortgage practices leading up to the financial crisis. In November, JPMorgan reached a $13 billion settlement—the largest settlement with a single entity in American history.
"We're not letting up and we're not going away," West warned. "We will continue to pursue these cases and follow the facts wherever they lead and enforce the law fairly but aggressively should we uncover evidence of unlawful conduct."