Wall Street Journal - July 14, 2014, by Alan Zibel - Citigroup’s $7 billion settlement with the Justice Department over the sale of flawed mortgage securities includes an agreement by the bank to provide $820 million worth of loan forgiveness and other assistance, plus nearly $300 million in refinancing. The money is also earmarked to help with down payments, donations to community groups and financing for rental housing.

These requirements, outlined in a 15-page appendix to the agreement, provide more specificity for consumer assistance than a $25 billion 2012 state/federal settlement with Citigroup and four other banks over mortgage-servicing problems. They also are more detailed than a November 2013 settlement with J.P. Morgan Chase & Co. over similar flawed mortgage securities sold to investors.

At a press conference in Washington on Monday, Associate Attorney General Tony West said the department aimed to improve on previous settlements by establishing an “an innovative consumer relief menu—one that not only includes the principal reductions and loan modifications we’ve built into previous resolutions, but also new, consumer-friendly measures.”

The Citigroup settlement, unlike previous pacts, directs the bank to provide half of its loan assistance to particularly hard-hit parts of the country. It also mandates that borrowers whose loan balances are cut won’t remain “underwater” —or owe more on their homes than their properties are worth.

The J.P. Morgan settlement addresses similar issues, but in a less targeted way. It gave the bank a bonus for providing aid to hard-hit areas, but set no specific requirement. In addition, the J.P. Morgan settlement encourages loan write-downs but does not specify how much of a borrower’s debt must be forgiven. The Citigroup settlement contains $180 million in financing for affordable rental housing—a provision not included in other settlements.

“This settlement is far more nuanced than previous settlements with respect to consumer relief,” said Andrew Jakabovics, senior director for policy development and research Enterprise Community Partners, a large affordable-housing nonprofit group.  The pact, he said, “reflects many of the best practices we’ve seen develop with respect to creating sustainable loan modifications.”

A Justice Department official said the consumer-assistance portion of the Citigroup settlement reflects refinements to the government’s thinking after previous settlements. In addition, the official said the smaller size of Citigroup’s mortgage-lending portfolio caused the government to consider additional avenues for relief because the bank had fewer loans to modify.

There has been tension between the Obama administration and liberal activist groups over efforts to resolve cases related to banks’ mortgage-crisis conduct.

Consumer groups have been unhappy with previous settlements of mortgage-related cases. For example, the 2012 mortgage-servicing settlement allowed banks to receive credit for short sales, in which a bank agrees to allow the sale of a property with a mortgage worth more than the home’s value, and for granting “deeds in lieu of foreclosure,” where a homeowner voluntary surrenders the home.

Some activists are still skeptical of the government’s settlements with the financial industry. Kevin Whelan, national campaign director for the Home Defenders League, an activist group representing homeowners, said there’s been no noticeable impact from last fall’s J.P. Morgan settlement.

“We haven’t seen any evidence that they’ve done anything at all,” Mr. Whelan said.

No statistics on the J.P. Morgan settlement have been released. A J.P. Morgan spokeswoman declined comment.

Joseph Smith, a former North Carolina banking regulator, is serving as the independent monitor overseeing the J.P. Morgan settlement and is expected to release a report on its progress in the coming weeks.

Thomas Perrelli, a former Justice Department official who helped broker the 2012 mortgage settlement, will serve as the monitor of the Citigroup agreement. Mr. Perrelli is now at the law firm Jenner & Block in Washington.

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