Citigroup to pay US$7b to settle mortgages probe
Print Edition
CITIGROUP will pay US$7 billion to settle an investigation into risky subprime mortgages, the type that helped fuel the financial crisis.
The agreement announced yesterday comes weeks after talks between the sides broke down, prompting the government to warn that it would sue the New York bank. The bank had offered to pay less than US$4 billion, a sum substantially less than what the Justice Department was asking for.
The settlement stems from the sale of securities made up of subprime mortgages, which fueled both the housing boom and bust that triggered the Great Recession at the end of 2007. Citigroup and other banks downplayed the risks of subprime mortgages when packaging and selling them to mutual funds, investment trusts, pensions, as well as other banks and investors.
The securities, which contained residential mortgage-backed securities and collateralized debt obligations, plunged in value when the housing market collapsed in 2006 and 2007. Those losses triggered a financial crisis that pushed the economy into the worst recession since the 1930s.
The bank separately agreed in April to pay US$1.13 billion to settle claims by investors seeking that the lender buy back billions of dollars in residential mortgage-backed securities.
In the deal announced yesterday, Citigroup will make a US$4 billion civil monetary payment to the Justice Department, and another US$500 million in compensatory payments to state attorney’s general and the Federal Deposit Insurance Corporation.
The bank will provide US$2.5 billion for consumer relief, which will include financing for construction and preservation of affordable housing, as well as principal reduction and forbearance for residential loans.
The Citigroup settlement comes months after a similar deal between the Justice Department and JPMorgan Chase & Co, the nation’s biggest bank. The bank agreed to pay US$13 billion after an investigation into toxic mortgage-backed securities.
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