Citi inks $7 billion mortgage settlement

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citigroupNEW YORK (CNNMoney) — Citigroup agreed to pay $7 billion to settle charges that it packaged bad mortgages during the run-up to the financial crisis.

The deal includes $4 billion in penalties, $2.5 billion in mortgage modifications and other relief to homeowners, and $500 million going to a number of states and the Federal Deposit Insurance Corp.

The settlement helps Citi avert a civil suit by the Justice Department and mirrors similar agreements with JPMorgan Chase and other lenders in recent years.

The amount is far more than the $363 million initial offer from Cit but less than the $12 billion initially sought by Justice, according to a source familiar with the deal. The breakthrough in the talks occurred after Justice Department lawyers notified the bank that they were prepared to file a lawsuit against the bank.

Citi’s agreement is about half the $13 billion JPMorgan Chase agreed to pay last November, and is also smaller than a $9.5 billion settlement that Bank of America reached in March with the regulator of government-controlled mortgage lenders Fannie Mae and Freddie Mac.

Bank of America remains in talks with the Justice Department on a separate mortgage settlement with that agency, but government lawyers and the bank remain billions of dollars apart.

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