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THE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & LifestyleTHE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & Lifestyle

Politics

Politics

Citigroup and US Government Reach $7B Settlement

The Citibank Building is shown, Tuesday, Oct. 16, 2012 in New York. Citigroup CEO Vikram Pandit resigned on Tuesday, surprising Wall Street. (AP Photo/Mark Lennihan) via AP Photo
The Citibank Building is shown, Tuesday, Oct. 16, 2012 in New York. Citigroup CEO Vikram Pandit resi... The Citibank Building is shown, Tuesday, Oct. 16, 2012 in New York. Citigroup CEO Vikram Pandit resigned on Tuesday, surprising Wall Street. (AP Photo/Mark Lennihan) via AP Photo
The Citibank Building is shown, Tuesday, Oct. 16, 2012 in New York. Citigroup CEO Vikram Pandit resigned on Tuesday, surprising Wall Street. (AP Photo/Mark Lennihan) via AP Photo
The Citibank Building is shown, Tuesday, Oct. 16, 2012 in New York. Citigroup CEO Vikram Pandit resi... The Citibank Building is shown, Tuesday, Oct. 16, 2012 in New York. Citigroup CEO Vikram Pandit resigned on Tuesday, surprising Wall Street. (AP Photo/Mark Lennihan) via AP Photo

Citigroup has agreed to pay $7B in a deal with the government for misleading investors about the risk levels of mortgage-backed securities sold just before the 2008 financial crisis, according to the Justice Department. Citigroup is one of the largest banks to take a hit from the task force formed by President Obama to eliminate financial wrongdoing by big businesses. The bank received $45B in taxpayer bailout money in 2008.

The task force was formed in 2012 to investigate whether banks were aware that they were placing inferior loans into securities sold to investors. The fine includes a $4B civil penalty, which Attorney General Eric Holder deemed appropriate.

In a news conference, he said, “The penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi.”

In a report from Citigroup, their employees were told by due diligence firms that some loans didn’t meet certain standards and laws, but they ignored those facts and put them into bonds anyway. In one instance, nearly half of a sample of loans were flagged for low credit scores and inflated appraisals of the homes being sold. The Citigroup employees then instructed the due diligence firms to adjust the grades of loans to make them appear as less risky than they were.

Holder added, “The action is merely the latest step in our active and ongoing pursuit of those whose activities defrauded the American people and inflicted grave damage on our financial markets. Citi is not the first financial institution to be held accountable by the Justice Department, and it certainly won’t be the last.”

In regard to the distribution of the settlement money, $820M will be put toward eliminating qualified homeowners’ debt that has them owing more money than their home is worth. Another $299M will go to refinancing, coupled with a reduction of interest rates by at least two percentage points. Citigroup’s settlement will commit $50M for community development funds and housing counselors. Citi also agreed to provide $180M in financing for affordable rental housing.

 


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