CitiGroup, DOJ, Settle Mortgage Fraud Claims for $7 Billion
CitiGroup and the US Department of Justice have settled mortgage fraud claims on Monday, July 14th, with the bank agreeing to pay $7 billion.
The company agreed to the settlement with the DOJ to settle claims that it backed bad mortgages during the lead-up to the financial crisis in 2008. The settlement means that Citi will avoid a civil lawsuit for mortgage fraud brought forth by the Justice Department, and mirrors a similar agreement with JPMorgan Chase last year.
This is the largest mortgage fraud settlement payment so far, according to the DOJ. The settlement includes a $4 billion cash penalty to the Justice Department, as well as $2.5 billion in “soft dollars” to aid struggling consumers who were hurt by the financial crisis, and $500 million for state attorneys general and the Federal Deposit Insurance Corporation.
Consumer relief will go toward financing construction and preservation of affordable multifamily rental housing, reduction and forbearance of residual mortgages, and other direct consumer benefits through the creation of financial relief programs, through CitiBank.
The settlement arrived after months of contentious negotiations between Citi and the DOJ, after an investigation uncovered Citi’s practices of packaging and selling mortgage securities which lost huge amounts of money during the financial crisis, and caused large losses for investors. The bank was charged for packaging problematic home loans and selling them between 2003 and 2008, and ignored warnings about poor mortgage quality when those mortgages were bundled into bonds. Around 25% of the loans under review went missing or included suspect stated income.
“The bank’s misconduct was egregious,’’ Attorney General Eric H. Holder Jr. said in a statement. “As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits.”
“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,” Citigroup’s chief executive, Michael L. Corbat, said in a statement.
The settlement would result in about $3.8 billion in taxes, which would wipe out the bank’s profits for the second quarter.
“Despite the fact that Citigroup learned of serious and widespread defects among the increasingly risky loans they were securitizing, the bank and its employees concealed these defects, ’’ Mr. Holder said. “They misrepresented the facts, including the level of risk. They sold defective loans to countless investors, including federally-insured financial institutions.” He added that the mortgage fraud settlement did not absolve “CitiGroup or its individual employees” from future criminal charges. However, the agreement does absolve the company of any potential cases related to C.D.O’s.
Originally, CitiGroup offered a fraction of the eventual settlement money – just $363 million – highlighting a disparity between the seriousness of the mortgage fraud lawsuit from the DOJ’s perspective, and from the bank’s perspective.
The settlement agreement also sets the stage for resolving mortgage fraud lawsuits with Bank of America and the DOJ, which was put on hold during the heated negotiations with CitiGroup.
“As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits,” Holder said. “They did so at the expense of millions of ordinary Americans and investors of all types – including other financial institutions, universities and pension funds, cities and towns, and even hospitals and religious charities. Ultimately, these investors suffered billions of dollars in losses when Citi’s false and fraudulent claims came crashing down.”
The Department of Justice was criticized by an internal watchdog group for failing to crack down on mortgage fraud, despite statements from President Obama that the problem was one of the top priorities of his administration.
The Strom Law Firm Protects Mortgage Fraud Whistleblowers in South Carolina
If you have direct knowledge of fraud against the government and believe you have a qui tam or whistleblower case, whether it is against a for-profit long term care facility, a technology corporation, or mortgage fraud case, the attorneys at the Strom Law Firm can help. We offer free, confidential consultations so you can discuss the facts of your case with impunity. Contact us today. 803.252.4800