The U.S. Department of Justice nailed Citigroup on mortgage fraud charges, getting the bank to agree to pay out a $158 million settlement while admitting it tricked a federal insurance program into backing bad loans. When borrowers defaulted, taxpayers ended up footing the bill.
The L.A. Times reports the DOJ’s complaint accused Citigroup of violating a Federal Housing Administration insurance program’s rules for six years. The bank allegedly failed to pre-screen mortgages and report signs that the loans were in trouble.
Because it was able to get government insurance for its ill-advised loans, the bank could turn around and sell them to investors and reap larger profits. Citigroup says it’s happy to have the case behind it and still plans on having its loans insured by the FHA.
The settlement most likely won’t damage the bank’s ability to do business as it pleases, but hopefully for the sake of taxpayers it does a better job of screening its loans so the government doesn’t get stuck with its poor bets.