Citigroup Settlement Penalties Are the Largest in History

The U.S. Department of Justice recently announced a $7 billion settlement with Citigroup Inc. over the bank’s faulty mortgage securities and egregious practices. The settlement includes the largest civil fraud penalty ever levied by the Justice Department under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and is more than twice what many analysts expected.

The government’s description of Citi’s wrongdoing closely mirrors conduct outlined in the Justice Department’s settlement with J.P. Morgan Chase. In both cases, the banks, or entities that they acquired, acknowledged repeatedly giving investors misleading information about mortgages underlying the securities. In many cases, those mortgages didn’t meet internal underwriting guidelines—which ensure that safe and secure loans are issued and help set the terms of the loan—but were included in packages and sold to investors.

Since the housing crisis hit in 2008, NCLR supported the efforts of state attorneys general in pursuing financial institutions whose predatory lending practices decimated the household wealth of millions of families, which was particularly devastating to Latinos and other communities of color. Working alongside advocates, housing counselors, and champions within the administration and the attorney general coalition, a national settlement was reached that made key changes to the mortgage servicing industry.

In California, NCLR worked closely with Attorney General Kamala D. Harris in the state’s successful passage of the Homeowner Bill of Rights, the first legislation of its kind that gives homeowners protections against abusive foreclosure practices by banks, and put an end to dual tracking.

This settlement is a reminder of the main causes of the financial collapse: poor practices in subprime mortgage lending, lack of transparency in the complex securitization process, and lax regulatory enforcement and oversight. Regulatory reforms are now in place that, we hope, will substantially improve the financial system.

The agreement also appears to improve on prior settlements by including affordable housing financing and counseling funds as permissible activities, a strong monitor, and it references relief to reach hard-hit areas.

That said, it will be important to assess how well the settlement is administered. Citi can make amends by working in good faith to ensure that hard-hit areas receive the relief and attention they deserve. In addition, the bank can significantly improve the financial system by collecting and reporting impact data by race and ethnicity, adding a substantial measure of transparency and accountability to the process. In doing so, the bank can ensure that those most harmed by their wrongdoing receive the help they need.

It is important for banks and mortgage lenders to settle accounts with the public for the 2008 crisis once and for all, and to provide as much relief and help as possible to those damaged by it. In doing so, they will help to build a better and stronger financial market in the future.

Latinos are expected to comprise 40 percent of new households over the next two decades, and 50 percent of homebuyers will be Latino. Even with the recent foreclosure crisis, the desire for Latinos to be homeowners has not abated. According to a poll conducted by Latino Decisions and NCLR, the majority of Latino voters still believe that a key component of the American Dream is owning a home. Overall, 53 percent of Latino voters and 58 percent of immigrants agree that homeownership is a principle of the American Dream.

Latinos can contribute to the recovery of the nation’s housing market, but the widespread availability of safe and affordable mortgages depends on whether financial reforms can create a housing finance system that is accessible, transparent, and accountable for all Americans.