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Citigroup Settlement

 Market Conditions  \  July 16, 2014 10:00 am

Citigroup Settlement

Citigroup, one of the big banks accused of selling bad mortgage securities that led to the massive 2008 financial crisis has finally reached a settlement with the US Justice Department.  After months of investigations, testimonies and negotiations, Citigroup agreed to pay a $7 billion settlement, this is including a record penalty amount of $4 billion to the Justice Department. The settlement amount is roughly half of the Citigroup’s $13 billion profits from last year.

So What Did Citigroup Do? 

According to the investigations and admittance by Citigroup Bank, they grossly mislead both investors and the American public into believing that the mortgage-backed securities they were selling were in compliance with the law and guidelines pertaining to correct underwriting guidelines. They were not.  

So Where Will This $7 Billion Go?

The big bank will pay out $7 billion for what they did. Below is a breakdown of where this money will go:

  • US Justice Department will receive $4 billion in a fine payment. This is the largest penalty that has ever been issued under Federal Law.
  • Consumer Aid Programs will receive $2.5 billion. Consumer Aid programs include principal reductions and various relief options for the homeowners and communities affected. Citigroup has also pledged to provide funding to legal aid programs.
  • $500 million will be given to the FDIC and five states; California, Delaware, Illinois, Massachusetts and New York. 

Of the $500 million awarded, California will be receiving $192 million. $90 million of this will go towards consumer relief programs such as loan forgiveness, interest rate reductions, and financing for affordable rental housing.

California will then take the remaining $102.7 million and divide this between the two large employee pension funds in California, CalPERS and CalSTRS. This will compensate for losses they endured by purchases from Citigroup.

Who is Entitled to Compensation?

Consumers that were directly affected by the deceptive practices, specifically Homeowners struggling to make payments are most likely. Citigroup has agreed to contact those eligible, but some news sources are advising consumers to be proactive and contact Citigroup for further information. Please note that all relief is intended for those with mortgages made or serviced by Citigroup.

Investigations Will Continue

Talks are still in the works between the US Justice Department and the nations second largest bank, Bank of America, in pursing similar or possibly larger settlement amounts for those affected. 

There are many individuals that feel that the Justice Department and the special task force that was designed to investigate these crimes in 2012, is still not enough. The massive loss  suffered in part by these deceptive banking practices have impacted thousands of home owners. Some of which are still suffering from the repercussions today. 

To date the specially designated task force, the Financial Fraud Enforcement Task Force, has recovered $20 billion so far for consumers and investors in the US. Investigations will continue with several other banking companies.


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