July 22, 2014
By Stephanie West
Washington DC – Citigroup, has acknowledged it made serious misrepresentations to the public. This included the manner in which Citigroup marketed and sold residential mortgage-backed securities (RMBS). The settlement requires Citi to pay $4.5 billion in hard dollars and provide $2.5 billion in consumer relief. New York State will receive $182 million: $92 million in cash and a minimum of $90 million in consumer relief for struggling New Yorkers.
The resolution requires Citigroup to provide relief to underwater homeowners, distressed borrowers, and affected communities through a variety of means including financing affordable rental housing developments for low-income families in high-cost areas.
The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal projected formed in 2012 to share resources and continue investigating wrongdoing in the mortgage-backed securities market prior to the financial crisis. Attorney General Schneiderman co-chairs the RMBS working group.
Citigroup securitized and sold RMBS with underlying mortgage loans that it knew had material defects. Citigroup employees were aware that significant percentages of the mortgage loans reviewed in due diligence had material defects. In one instance, a Citigroup trader stated in an internal email that he “went through the Diligence Reports and think[s] [they] should start praying . . . [he] would not be surprised if half of these loans went down. . . It’s amazing that some of these loans were closed at all.” Citigroup nevertheless securitized the loan pools containing defective loans and sold the resulting RMBS to investors for billions of dollars. This behavior, along with similar conduct by other banks that bundled defective and toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis.