By Christina Rexrode
Citigroup Inc. has started providing aid to struggling
homeowners as part of its $7 billion settlement with the Justice
Department.
An initial report on Citigroup's efforts is expected to be
released Wednesday by Thomas Perrelli, a former Justice Department
official who was hired to make sure Citigroup complies with the
pact.
The bank in July agreed to settle government allegations that it
misled investors about dubious mortgage-backed securities it was
selling before the financial crisis. But $2.5 billion of that tab
has to be paid in the form of "consumer relief." That means the
bank gets credit for actions like lowering a struggling homeowner's
mortgage rate, lending to low-income families who want to buy their
first home, or paying to demolish abandoned properties that are
neighborhood eyesores.
In an interview, Mr. Perrelli said it was too early to draw
broad conclusions about Citigroup's compliance with the pact. He
also said he would be keeping a close eye to make sure that the
bank's own internal group overseeing the process stays independent
from the mortgage-making unit, though so far he hasn't seen
anything to give him pause.
Mr. Perrelli, a partner at the law firm Jenner & Block in
Washington, was a chief architect of the national mortgage
settlement in 2012.
For its first report, Citigroup gave Mr. Perrelli's office a
sample of 100 mortgages, where it had agreed to forgive the entire
unpaid portion on each one. Mr. Perrelli's office calculated that
Citigroup should receive $13.97 million worth of credit from
forgiving those loans. That is in line with what Citigroup had
estimated--essentially giving the nod that its processes for
estimating how much credit it should get is on the right track.
All those loans were on mortgages where, as the settlement
agreement puts it, "foreclosure is not pursued" -- bank-speak for
loans where the bank would end up spending more to foreclose on a
property than the property is even worth.
This caught Mr. Perrelli's attention: If a property is worth so
little to Citigroup, then why should Citigroup get credit for
walking away from it? One difference is that, to get credit for the
settlement, Citigroup also has to release its liens against those
properties, Mr. Perrelli noted. That is something the banks don't
always do, and it is important to struggling homeowners because
otherwise, they can be on the hook for paying those liens even if
their house has been foreclosed on.
The average unpaid balance on those mortgages was $140,000, Mr.
Perrelli said, and they included a mix of occupied and vacant
homes. Some, he added, were higher-value homes, but they had
significant tax liens against them, meaning that if the bank
foreclosed on them, the proceeds would probably be eaten up by the
tax bill.
Mr. Perrelli said he would be tracking the types of communities
that benefit from the government-mandated relief, including
characteristics like income level and ethnicity. Consumers can't
apply for this aid--the most they can really do is call and ask if
they're eligible--and the settlement gives Citigroup broad
discretion over how it offers the aid. Mr. Perrelli said he hopes
the information will be useful when the government structures
future settlements.
Citigroup said in a statement that it remains "committed to
fully satisfying" the requirements of the settlement. Its deadline
is the end of 2018.
J.P. Morgan Chase Co. and Bank of America Corp. are under
similar pacts after their settlements with the Justice Department.
J.P. Morgan, which settled first, has told its independent monitor
that it is more than halfway through with its agreement to spend $4
billion on consumer aid.
Write to Christina Rexrode at christina.rexrode@wsj.com
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