CitGroup to pay $7B in federal, state accord
CitiGroup will pay $7 billion in a settlement with the federal government and four states – including Massachusetts - over its residential mortgage-backed security activities, Atty. Gen. Martha Coakley announced Monday.
As part of the settlement, an expected $2.5 billion will be set aside for consumer relief such as loan modifications; $500 million will be used to compensate investors and provide other state relief; and $4 billion in civil penalties will be paid, according to a statement from Coakley’s office. Of the $2.5 billion made available for consumer relief, $10 million will be made available for Massachusetts borrowers, with additional relief available as needed, the statement read.
Meanwhile, the commonwealth will receive a direct cash payment of $45.7 million to settle Coakley’s investigation of CitiGroup’s securitization practices, including around $6.5 million to the Pension Reserves Investment Management Board (PRIM) and more than $15 million in direct consumer relief.
“Since 2009 our office has led the way in holding Wall Street securitizers accountable, and this cooperative federal-state enforcement action uses that blueprint to recover billions across the country,” Coakley said.
CitiGroup and its subsidiaries played a significant role in the securitization of residential home mortgages, the statement from the AG’s office said. Many of these mortgages were subprime loans that were sold to consumers with cheap short-term teaser rates, according to the statement, and its subsidiaries bundled the loans into investment pools and sold notes to investors backed by these loans.
In a separate statement, the U.S. Department of Justice called Citgroup’s actions “egregious. … Under the terms of this settlement, the bank has admitted to its misdeeds in great detail. The bank’s activities shattered lives and livelihoods throughout the country and around the world. They contributed mightily to the financial crisis that devastated our economy in 2008.”
The Justice Department said that as part of the settlement, Citigroup acknowledged it made serious misrepresentations to the public – including the investing public – about the mortgage loans it securitized.
In a statement published on The Wall Street Journal’s website (WSJ.com), Citigroup CEO Michael Corbat said the settlement "is in the best interests of our shareholders, and allows us to move forward and to focus on the future, not the past.”
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