CitiGroup to Pay $7 Billion in Federal-State Deal Over Mortgage Backed Securities

BOSTON – CitiGroup, Inc. will pay $7 billion in a joint federal-state settlement over its mortgage-backed security activities, Attorney General Martha Coakley announced today. This is the seventh settlement resulting from AG Coakley’s ongoing investigation into the role of Wall Street investment banks in funding, purchasing and securitizing unfair residential mortgage loans.

The Massachusetts Attorney General’s Office, the Department of Justice (DOJ) and four other states entered into the agreement today. As part of the $7 billion settlement, an expected $2.5 billion will be set aside for consumer relief such as loan modifications, $500 million used to compensate investors and other state relief, and $4 billion in civil penalties. Of the $2.5 billion made available for consumer relief, $10 million will be made available for only Massachusetts borrowers, with additional relief available as needed.

As part of this agreement, the Commonwealth will receive a direct cash payment of $45.7 million to settle the AG’s own investigation of CitiGroup’s securitization practices, including around $6.5 million to the Pension Reserves Investment Management Board (PRIM), more than $15 million in direct consumer relief, and the rest to the Commonwealth.

“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,” AG Coakley said. “This is the seventh case that Massachusetts has resolved around the securitization of unfair mortgage loans, providing significant relief to homeowners and taxpayers in the Commonwealth.”

The settlement is the result of lengthy investigations by the Massachusetts AG’s Office, the Department of Justice, and other enforcers regarding unfair and deceptive practices committed by CitiGroup. The settlement also resolves the separate state investigations by Massachusetts, Delaware, New York, Illinois, and California.

CitiGroup and its subsidiaries played a significant role in the securitization of residential home mortgages. Many of these mortgages were subprime loans that were sold to consumers with cheap short term teaser rates. CitiGroup and its subsidiaries bundled the loans into investment pools and sold notes to investors backed by these unfair loans. Investors, including government investors, suffered significant losses when the market crashed and the nature of these mortgage securitizations became clear.

The AG’s Office was the first in the nation to investigate and hold Wall Street securitization firms accountable for their role in the subprime mortgage crisis. Today’s settlement with CitiGroup is the most recent settlement resulting from the AG’s ongoing investigation into the role of Wall Street investment banks in funding, purchasing and securitizing unfair residential mortgage loans. It follows the resolution of these other securitization cases:

• In May 2009, Goldman Sachs agrees to pay $60 million in relief for the Commonwealth and affected homeowners as part of a settlement with the AG’s Office.
• In June 2010, Morgan Stanley agrees to pay $102 million in relief for the Commonwealth and affected homeowners as part of a settlement with the AG’s Office.
• In November 2011, RBS agrees to pay $52 million in relief for the Commonwealth and affected homeowners pursuant to a settlement with the AG’s Office.
• In September 2013, Barclays Bank PLC agrees to pay $36 million to the Commonwealth and affected homeowners as part of a settlement with the AG’s Office.
• In November 2013, JPMorgan-Chase agrees to pay $34 million to the Commonwealth and affected homeowners as part of a settlement with the AG’s Office.
• In December 2013, Countrywide Securities Corporation makes $17.3 million payment to the state pension fund and the Commonwealth as part of a settlement with the AG’s Office.

AG Coakley’s office has been a national leader in holding banks and investment giants accountable for their role in the economic crisis. In addition to recoveries involving the securitization of loans, AG Coakley has also obtained settlements with Countrywide, Fremont Investment and Loan, Option One and others on behalf of Massachusetts homeowners. In 2012, AG Coakley’s office joined a $25 billion nationwide settlement with the five major lenders over unlawful foreclosure practices.

AG Coakley’s first-in-the-nation HomeCorps program, established with funds from that $25 billion settlement, continues to provide assistance to borrowers across the state with dedicated loan modification specialists and through a series of grants. As a result of all these actions, her office has recovered more than $700 million in relief for investors and borrowers, helped keep more than 30,000 people in their homes, and returned more than $70 million in taxpayer funds back to the Commonwealth.

More information about AG Coakley’s work during the lending crisis can be found here, along with a report that offers a transparent record of actions taken by the AG’s Office since 2007. More information on the $7 billion Citigroup settlement can be found on the DOJ’s website.

The Commonwealth’s investigation of CitiGroup’s securitization practices was handled by Attorney General Martha Coakley’s Insurance and Financial Services Division.

Originally published by The Official Website of the Attorney General of Massachusetts