The lawsuit revolves around the bank's processes used in underwriting, and claims in part that ''actionable misstatements or omissions in connection with the issuance and underwriting of residential securities...'' occurred. The suit demands Citigroup repay all invested monies along with various damages.
This, while major, isn't the only bank that's being hit by big lawsuits. Many are being warned to repay their investors ''or else''. Charles Schwab isn't lashing its legal powers only on Citibank, either. It's seeking to recoup nearly $1.4 billion from more than 36 mortgage companies or banks.
The lawsuit, filed in the U.S. District Court in San Francisco, claims:
- Citibank lied about the risks of ''tens of thousands'' of subprime loans
- The loan originators ''departed extensively'' from their underwriting guidelines
- The subprime loans were misstated to both Citibank and Cambridge Place.
The problem, of course, is due to the major mortgage meltdown in late 2007 and 2008. Beginning with Bear Stearn and eventually affecting nearly every mortgage company in the nation, they began falling like dominoes. Part of the problem has to do with stated subprime loans, which allowed folks to qualify for 100% loan to value (LTV) with low credit ratings. Some lenders accepted these 100% LTV loans with the credit scores of the applicants below 550. Further, these would-be homeowners were allowed to ''state'' certain information on their loan applications, including their income, time on the job and even their bank balances. This meant too many Americans found themselves in too deep once the mortgage payments were due. Some were fortunate enough to have been in their homes for a few years and could refinance using what little equity they had accrued to ensure a lower loan amount, thereby lowering their monthly payments. This was more the exception than the rule, however.
In a brief press release on Friday, Citibank said its lawyers
were in the preliminary stages of reviewing the lawsuit and that it was not yet prepared to estimate potential losses. Despite the lawsuit, the bank's shares rose 3% at the opening bell on Friday.
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