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Citigroup Nears $7 Billion Deal to Resolve Mortgage Probe

Citigroup is close to a deal with the Department of Justice to resolve allegations that the bank sold defective mortgage backed securities in the lead up to the financial crisis, according to a report by the Wall Street Journal late Tuesday night.

Citing people familiar with the matter, the report claims that the settlement negotiations are getting close to finalizing a settlement of $7 billion. Officials from Citigroup and the Justice Department both declined comment on the ongoing negotiations.

According to people familiar with the matter, the deal will include $4 billion in cash payments to the federal government, with the rest coming in the form of borrower relief. The negotiations had been stalled until Citigroup reportedly upped their cash offer from $1 billion recently.

The deal would be the latest in a series of agreements between the government and major banks as the Justice Department seeks to apportion blame and repay the taxpayers for the part that the banks played in the events that caused the large scale economic downturn of the previous decade, a hole that the economy is still trying to dig out of to date.

The agreement could also  put more pressure on Bank of America to settle its own ongoing negotiations with the Justice Department. Talks between the two stalled last month. Last November, J.P. Morgan agreed to pay a record $13 billion. The government is said to be seeking more from Bank of America because the company issued more securities whose failure had a larger impact on the economy.

According to the report, the government was initially seeking $10 billion from Citigroup, closer to the deal that it got in the J.P. Morgan settlement, because it argued that, even though Citigroup issued fewer securities, the securities that it did offer performed much worse and had a greater detriment to the economy than securities offered by other banks.

More settlements are likely to be forthcoming.

About Author: Derek Templeton

Derek Templeton is an attorney based in Dallas, Texas. He practices in the areas of real estate, financial services, and general corporate transactional law. His experience includes time as an Attorney Adviser for the U.S. Small Business Administration and as General Counsel for a nonprofit organization in Dallas. A self-avowed "policy junkie," he has a keen interest in the effect that evolving federal policy has on the mortgage, default servicing, and greater housing industries.
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