The Justice Department has obtained a $7 billion settlement from Citigroup over the company’s role in faulty mortgage securities that fueled the housing bubble a decade ago, Attorney General Eric Holder announced on Monday.
“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,” Holder said in a statement. “The bank’s conduct was egregious. And under terms of this settlement, the bank has admitted to its misdeeds in great detail.” The attorney general said that Citi was able to protect its own financial interests by claiming that its toxic “financial products were sound,”
Citi is paying $4 billion as a civil penalty, which Holder says is a “record” that was “appropriate given the strength of the evidence of the wrongdoing committed by Citi.” The company will pay $500 million to state attorneys general and the Federal Insurance Corp. The remaining $2.5 billion will help consumers who are struggling with mortgage and other issues that that resulted from the 2007-2009 financial crisis.
According to the Wall Street Journal, the settlement is a middle ground between the $4 billion originally offered by Citigroup and the $10 billion sought by the government.
Prosecutors found out “that the misconduct in Citigroup’s deals devastated the nation and the world’s economies, touching everyone,” when reviewing every residential mortgage backed security issued or underwritten by the bank in 2006 and 2007, said Loretta Lynch, the U.S. attorney in New York’s Eastern District.
“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 charities,” said Holder. “Ultimately, these investors suffered billions of dollars in losses when Citi’s false and fraudulent claims came crashing down.”
Hundreds of thousands of homeowners may benefit from the settlement, according to Associated Attorney General Tony West.
Holder said the settlement does not make Citi or its employees exempt from potential criminal charges. “We believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business,” he said. “In fact, it was not all inevitable in these last few weeks that this case would be resolved out of court.”