Citi’s Settlement with the DOJ Is Just the Tip of the Iceberg According to Cornell Law Professor
Source Newsroom: Cornell University
Robert Hockett is an expert in the fields of organizational, financial, and monetary law. A Fellow of the Century Foundation and regular commissioned author for the New America Foundation, Hockett also does regular consulting work for the Federal Reserve Bank of New York and the International Monetary Fund. Hockett says it would be a ‘tragic irony’ if the same behavior that caused the housing bust were to once again profit Citi in the wake of foreclosures.
“Citi's $7 billion settlement with the Department of Justice this weekend marks another milestone in the Obama Administration's determination to bring alleged perpetrators of mortgage-backed securities fraud to account.
“Notwithstanding its comparatively small share of the subprime mortgage-backed securities market in the lead-up to 2008, Citi has agreed to pay one of the larger settlements secured by the Justice Department to date. This suggests that the Justice Department had significant evidence of reckless or intentional, rather than simply negligent, wrongdoing on the part of Citi personnel. Look next for similar negotiations between Justice Department and Bank of America, Goldman Sachs, and Wells Fargo.”
Of Citi's $7 billion settlement with the Justice Department, perhaps the most interesting component is the $2.5 billion in so-called 'soft' moneys. Citi has pledged to devote this amount to the provision of low-income multifamily home rentals on the one hand, mortgage forbearance and principal-reduction on the other hand.
“We must hope that the Justice Department through its settlement monitor will push Citi to focus on the last of those – principal-reduction – in particular. The reason is that mortgage forbearance is known to be far less effective in preventing default and foreclosure than principal-reduction, while rental housing for its part might simply become another revenue line for Citi – a revenue line that is partly dependent on homeowner default and foreclosure itself.
“It would be a tragic irony if the same behavior that brought housing price bubble, bust, post-bust negative equity and consequent foreclosure were now to elicit a 'penalty' that enables Citi to profit from foreclosure itself.”
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