Citigroup Pays a Price For Role in Mortgage Crisis
Citigroup has become the latest major financial institution to reach a multibillion-dollar settlement with the U.S. Justice Department for its role in the mortgage foreclosure crisis that rocked Florida’s housing market – and the American economy overall.
Unfortunately, most of those hardest hit by the debacle – consumers who’ve already lost their homes to foreclosure – won’t see any of those billions.
During the housing boom, major banks made home loans to people with questionable credit ratings, then bundled a bunch of the risky loans together and sold them as mortgage-backed securities to investors who were hoping to make money off the interest.
$7 Billion Settlement
Over the summer, Citigroup agreed to pay $7 billion to settle charges that it misled investors about the shaky nature of the mortgages it had repackaged and sold.
As CNN Money reported in July, those risky securities Citigroup was peddling allowed the financial giant to increase its profits and market share – until the house of cards collapsed.
“The bank’s activities shattered lives and livelihoods throughout the country,” U.S. Attorney General Eric Holder said in announcing the settlement. “They contributed mightily to the financial crisis that devastated our economy in 2008.”
At the time of the attorney general’s announcement, JPMorgan Chase and Bank of America had already agreed to settle similar claims for $13 billion and $9.5 billion respectively, according to CNN.
Additional settlements may be forthcoming.
Criticism From Consumer Advocates
But as NPR reported, although the $7 billion deal calls for Citi to set aside $2.5 billion for consumer relief, that money won’t go directly to homeowners who’ve already lost their property in foreclosure. Instead, the money is earmarked for modifying the terms of existing loans and for the construction of affordable multifamily rental housing.
Consumer advocates say it’s not enough. “Citi helped fuel the housing bubble that ultimately crashed the American economy, displacing millions of Americans from their homes and jobs,” Bartlett Naylor, a financial policy advocate for Public Citizen, told NPR. “This settlement does little to repair that damage.”
Not only that, but Citigroup remains profitable. Forbes reported that the multibillion-dollar settlement “did not, remarkably, draw (Citigroup’s) second quarter earnings from the black to the red – though it did do significant damage.”
Citigroup CEO Michael Corbat admitted as much in a statement released the same day as the Justice Department’s announcement. “Despite the significant impact of today’s settlement on our net income, our capital position strengthened…and our tangible book value increased,” the statement read.
Learn Your Options
That’s hardly welcome news to the many Floridians now in dire financial straits because of the housing crisis. But you may have some options that don’t involve losing your home outright if you find yourself stuck with a mortgage you can no longer handle.
At the Law Offices of Larry E. Bray, P.A., with offices in Lake Worth, West Palm Beach and Boca Raton, our practice utilizes a team of people to assess your situation and rescue you from financial ruin. In many cases, we are able to answer, defend and stop the foreclosure action long enough to explore the possibility of a home loan modification. To discuss your financial options, contact us today.
