The $7 billion deal that Citigroup agreed to strike with the Justice Department involves one of the largest cash penalties ever paid to settle a federal inquiry into a bank suspected of mortgage misdeeds.
But another major component of the settlement has little to do with troubled mortgages. As part of the deal, Citigroup has also agreed to provide $180 million in financing to build affordable rental housing.
The unusual arrangement, which was outlined in the deal on Monday, underscores how difficult it remains for Citigroup to shed its rocky past and how federal prosecutors are getting creative in holding the nation’s big banks accountable for losses that crippled the global financial system in 2008.
Like other settlements the federal government has signed with Wall Street, Citigroup’s deal also requires the bank to modify mortgages of struggling homeowners. But Citigroup’s mortgage business has shrunk appreciably since the financial crisis, and the bank doesn’t service enough troubled mortgages to satisfy the monetary settlement terms for homeowner relief. So the bank agreed to finance affordable rental housing in unspecified “high cost of living areas.”
Wall Street watchdog groups and housing advocates said the terms of the $7 billion settlement highlight how the federal government has fallen short in its effort to hold banks accountable, noting that neither Citigroup nor any of its executives have been criminally charged for the bank’s mortgage problems.