The US Attorney General announced that Citigroup has agreed to pay USD7 billion to settle a federal inquiry for its role in the sale of risky mortgage-based securities that led to the financial crisis and vowed to provide financing of up to US$180 million to build affordable rental housing.

US Attorney General Eric Holder announced the landmark Justice Department settlement, which is one of the largest cash penalties ever paid to settle a federal inquiry.

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The settlement deal calls for Citigroup to pay US$4 billion in civil penalty, US$500 million to the Federal Deposit Insurance Corp and the state attorneys general, and US$2.5 billion to help consumers affected by mortgage problems from 2007 to 2009, the year when the US faced financial crisis.

Another major component of the settlement also ordered Citigroup to provide financing of up to US$180 million to build affordable rental housing. Experts said this component has little to do with troubled mortgages.

The Justice Department launched an investigation into Citigroup and found out that it has ignored warnings of underwriting defects on mortgages it sold to investors in 2006 and 2007.

Holder said Citigroup and its employees concealed the defects despite the fact that it has learned of serious and widespread defects among the increasingly risky loans that the Justice Department was scrutinizing.

Prosecutors cited one internal email circulated within Citigroup, where one of the bank's trader wrote "went thru Diligence Reports and think that we should start praying ... I would not be surprised if half of these loans went down."

"The bank's conduct was egregious. And under terms of this settlement, the bank has admitted to its misdeeds in great detail,'' Holder said.

The latest Citi deal, and other settlements by banks, is expected to benefit hundreds of thousands of homeowners, said Associated Attorney General Tony West.

In 2013, JPMorgan Chase paid US$13 billion to settl a similar dispute with the Justice Department. Around US$2 was paid in civil penalty.

TagsCitigroup, Citi Group Settlement, Citigroup Mortgage Settlement