DOJ Settling With Citi and (Maybe) BoA Over Mortgage Securities
The Department of Justice took a lot of flak for failing to prosecute the banks whose mortgage lending practices contributed to the collapse of the housing market and the resulting recession. Other regulatory efforts have been similarly maligned by consumer advocates. (I'm looking at you, Independent Foreclosure Review.)
In the last month, it has been reported that Citigroup reached a $7 Billion settlement with the DOJ for its role in selling bad mortgage securities. It also seems that Bank of America is nearing a settlement with the DOJ. The BofA settlement is rumored to be between $16 and $17 Billion.
Before you find either the Citi or BofA settlements impressive, keep in mind that these sums are really a drop in the bucket for these banks. The rumored BofA settlement would only result in $9 Billion in payments from BofA. The rest would go towards consumer relief. In the past, this has translated to writeoffs, etc. of largely uncollectable debt. Allowing BofA to count these writeoffs as "payment" towards a settlement would be similar to the less-than-punitive National Mortgage Settlement.
Similarly, the Citi settlement is $4.5 Billion in cash. The remainder is borrower relief. These kinds of settlements are not truly punishments. Naked Capitalism does a great job breaking down the Citi settlement and why it's bogus here.
As more details on these settlements emerge, I will update the blog with my thoughts.