Citigroup Fined $7 Billion in Subprime Mortgages Investigation

by San Antonio Attorney

Citigroup was penalized $7 billion for its contribution in the 2008 financial meltdown. The bank agreed to make the payment to settle a federal investigation for selling securities containing risky subprime mortgages. The Justice Department said that Citigroup also admitted to a series of deception that, according to Attorney General Eric Holder, destroyed lives and triggered the worst economic crisis in many years.

The settlement deal signifies a reckoning for Citigroup, which is now liable for giving some financial assistance to countless Americans whose lives were shattered by the biggest economic turmoil since the Great Depression.

Aside from the $4 billion civil penalty that will be paid to the federal government, Citigroup will also provide $2.5 billion for consumer relief partly to aid borrowers whose homes were foreclosed and around $500 million to resolve claims from the Federal Deposit Insurance Corporation and state attorneys general.

The settlement does not prevent the likelihood of criminal prosecutions for the employees or the bank later on, Holder said.

The agreement is the most recent sizable penalty claimed for a mortgage company or bank at the center of the housing market crisis. Last year, The Justice Department has reached a $13 billion settlement deal with JPMorgan Chase & Co. and also filed a lawsuit against Bank of America Corp. for deceiving investors in its sale of mortgage-linked securities.

But the settlement deal is small in size in comparison to the substantial loss brought on by the Great Recession. Millions of people became unemployed and lost their homes, inflicting losses that summed up in trillions of dollars.

Banks, which includes Citigroup, targeted to reduce the risks of subprime mortgages when bundling and selling them to investment trusts, mutual funds and pensions, along with other banks and investors.

The toxic securities were made up of home mortgages from borrowers who were most likely unable to pay their loans, yet were advertised as fairly safe investments until the housing market crisis in 2006 and 2007. The investors sustained billions of dollars in deficits. Those losses caused a financial crisis that shoved the economy into the most detrimental recession since the 1930s.

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