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Citi to Record $7B Fine in Mortgage Settlement Agreement

For its role in hawking defective mortgage investments during the subprime housing boom, Citigroup Inc. has agreed to fork over $7 billion, in a combination of cash and consumer relief, to settle numerous state and federal investigations.

Our Miami foreclosure lawyers understand this could mean relief for those who are on the verge of a foreclosure and possibly compensation for those who have already lost their homes.

An investigation by the U.S. Justice Department indicated Citigroup’s actions were part of what was at the core of the housing market bust: mortgage-backed securities that were marketed as safe investments, despite internal knowledge that they were doomed to collapse. When they did, the economy imploded like a house of cards, leading to a financial crisis from which the world is still recovering.

Although the settlement was slightly more than half of the $12 billion government administrators sought in negotiations with the bank, it’s still much higher than what analysts had anticipated from the third-largest bank in the country. Similar talks between the Justice Department and Bank of America Corp. are ongoing.

In the case of Citigroup, executives conceded there was knowledge that a significant portion of sample loans failed to comply with acceptable standards of underwriting. And yet, they were pooled into securities by the bank.

Specifically, there is evidence the bank listed ridiculously inflated borrower incomes and home values that were unreasonably below the appraisal value. Documents show a trader within the bank noted in 2007 that half of those loans would likely tank. With regard to the strength of the securities, that trader told his colleagues they had “better start praying,” adding it was “amazing” that the majority ever closed in the first place.

The government had threatened to sue Citibank if it wouldn’t come to the table to negotiate a settlement agreement over the charges.

Per the terms of the agreement, the bank will have to pay $4.5 billion directly in cash and offer another $2.5 billion in help to struggling homeowners and low-income tenants. It’s unclear how much of that will go to Florida residents, though we understand the state of California and its residents will receive approximately $200 million. We expect Florida to receive something comparable given the severity with which the housing crisis impacted this state.

The settlement amount exceeds the $500 million penalty imposed on JPMorgan Chase & Co. in November for similar allegations.

Consumers should benefit from the deal as the bank provides options for affordable multifamily rental housing, as well as forbearance and principle reductions for residential loans that are due at the close of 2014.

Also previously, U.S. Bank agreed to pay $13 billion to resolve these same kinds of claims. These cases tend to be incredibly complex. According to officials, inspector general’s offices and U.S. attorneys offices collected some 25 million documents in the course of issuing some 50 subpoenas.

U.S. Attorney General Eric Holder held the settlement doesn’t absolve the bank or employees from possible criminal sanctions in the future. He added the activities of the bank “shattered lives and livelihoods” both in the U.S. and globally.

He indicated that while the settlement goes beyond what the bank might consider a normal cost of doing business, there was no question it would not serve to completely make consumers whole.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.

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