The D.O.J settled with J.P Morgan Chase & Co. (J.P Morgan) in November 2013, Citigroup
Inc. (Citigroup) in July 2014, and Bank of America Corporation (Bank of America) in August
2014. These settlements concerned allegations related to the issuance of residential mortgage backed
securities. Collectively, these three settlements totaled $36.65 billion in payments from
the banks to various federal, state, non-governmental organizations, and direct consumer relief.
In March 2015, Senator Ron Johnson, Chairman of the Senate Homeland Security and
Governmental Affairs Committee, began oversight of the D.O.J’s settlements with large financial
institutions. As chairman of the chief investigative committee of the Senate, Chairman Johnson
requested information from the D.O.J and the designated independent monitors of the three
settlements. The purpose of this majority staff report is to promote broad transparency and
accountability in the disbursement of billions of dollars of settlement funds flowing outside of
the Congressional appropriations process.
The framework of the Constitution designates Congress as the sole entity empowered to
allocate public funds, either directly or through delegation to the agencies. The judicial system,
similarly, is the mechanism for adjudicating disputes and remedying wrongs. The D.O.J’s
housing settlements, however, removed millions of dollars of third-party payments from the
congressional appropriation process as well as from judicial review. Of the settlements funds set
aside for consumer relief, at least $640 million was set aside for third-party payments, to be
disbursed by the banks according to the settlement terms. By routing funds away from the U.S.
Treasury, the settlements circumvented Congress’s spending authority and eliminated Congress’s
ability to decide how to distribute the funds. While reasonable people may disagree on the
merits of these settlements, it is concerning nonetheless that the D.O.J unilaterally controlled the
allocation of billions of dollars absent Congressional and judicial involvement.
The majority staff report finds that as the banks disbursed settlement funds to third-party
organizations, there were no guarantees that the funds would help homeowners who lost their
homes. From the billions of dollars that each bank agreed to pay under the terms of the settlement, specific sums were earmarked for third-party groups approved by the Department of
Housing and Urban Development. The D.O.J did not require the third-party disbursements to go
to those homeowners actually aggrieved by the alleged wrongdoing. Instead, the D.O.J required
the banks to disburse the funds to these third-party groups without requiring any proof of how
the funds would be spent. Moreover, the independent settlement monitors charged with
overseeing the settlements have no way of knowing how the third-party groups spent the funds
they received through the settlements.
In addition to funding broader housing policy outside of the Congressional and judicial
processes, Chairman Johnson has found that the D.O.J collected more than $575 million for its
own purposes through the three settlements.
The D.O.J has the ability under federal law to collect
a three percent fee on settlement funds related to its civil enforcement efforts in order to pay for
processing debt litigation. Since the creation of this authority in 1993, however, the D.O.J’s total
collections—and, correspondingly, the three-percent payments to the D.O.J—have grown over
time. To date, the D.O.J has retained a total of $575.7 million from the housing settlements with
J.P Morgan, Bank of America, and Citigroup—a remarkable sum considering that the agency
collected only $158.3 million in three-percent payments as recently as fiscal year 2013.
The findings of this majority staff report are admittedly limited by the information
available to the Committee. Because Chairman Johnson’s inquiry was a broad examination of
the settlements, the Committee has not tracked the use of the settlement funds beyond the D.O.J
and the independent settlement monitors. Nonetheless, concerns are apparent in the D.O.J’s
housing settlements. Chairman Johnson’s oversight has found:
• Of the $36.65 billion in total settlements, the D.O.J earmarked $13.5 billion for
“consumer relief,” of which hundreds of millions of dollars are to be disbursed to
selected third-party groups approved by the Administration. (pages 20-25)
• Of the $13.5 billion in consumer relief funds, there is no requirement for every dollar
to be first distributed to any homeowners actually aggrieved before any money is
spent on broader housing-related policy goals. (pages 20-25)
• The settlements did not require any proof of how the third-party groups spent
consumer relief funds, and the independent settlement monitors have no visibility into
the use of those funds. (pages 25-30)
• The D.O.J has retained $575.7 million from three housing settlements for its own use
as part of the “three percent fund”—an amount that could easily fund oversight of
multiple housing regulators. (pages 32-35)
• The D.O.J’s use of the housing settlements to indirectly effectuate housing policy
ignores Congress’s power of the purse to appropriate funds for policy purposes.
(pages 16-20)
• The third-party consumer relief entities chosen by the D.O.J include politically active
and controversial groups. (pages 25-27)
• The sole entity designated by the D.O.J to receive undesignated surplus consumer
relief funds has been struggling with “management shortcomings,” “contracting
issues,” and other issues. (pages 27-30)
I. INTRODUCTION
In March 2015, Senator Ron Johnson, Chairman of the Senate Committee on Homeland
Security and Governmental Affairs, initiated an inquiry into the Department of Justice’s (D.O.J)
settlements with large financial institutions and credit rating agencies related to the 2008
financial crisis. Chairman Johnson sent a total of six letters requesting data and information
about the settlements. On March 11, 2015, Chairman Johnson requested information from the
D.O.J about its settlements with Bank of America, Citigroup, J.P Morgan, and Standard & Poor’s
(S&P).1
After receiving an incomplete response from the D.O.J,
2 Chairman Johnson sent a
follow-up letter on May 4, 2015.3
On May 29, 2015, the D.O.J responded with more specific
information about the amount of funds in each settlement and explained how each bank
maintained responsibility for distributing consumer relief funds.4
In response to this letter,
Chairman Johnson sent a third letter to D.O.J on July 28, 2015, requesting specific information
about the D.O.J’s Three Percent Fund, how the D.O.J tracked expenditures retained in the Three
Percent Fund, and the D.O.J’s involvement in selecting housing counseling agencies.5
The D.O.J
responded on August 24, 2015.6
Separately, on July 28, 2015, Chairman Johnson wrote individually to the independent
monitors tasked with overseeing each settlement, seeking information about how the banks were
distributing consumer relief funds and which entities had received funds to date.7
On August 7,
2015, Joseph A. Smith, Jr., the monitor for JPMorgan, responded to the Chairman’s letter.8
On August 11, 2015, Eric D. Green, the monitor for Bank of America, and Thomas J. Perrelli, the
monitor for Citigroup, each responded to the Chairman’s letter.9
The information obtained from the D.O.J and independent settlement monitors informs the
conclusions articulated in this majority staff report. From this information, it appears that
billions of dollars have flowed through these opaque negotiations of each settlement without
explicit accounting for actual damage done or a direct provision of assistance to those
homeowners who already lost their homes. Providing help to those struggling to stay in their
homes is a worthy policy goal. The D.O.J’s settlements with these major financial institutions,
however, show how the Obama Administration unilaterally made funding choices that
effectuated broad housing policy with no oversight or little accountability for how the funds were
ultimately spent.
II. AN OVERVIEW OF THE
ADMINISTRATION’S HOUSING SETTLEMENTS
The subprime mortgage and financial crises that occurred from 2006 to 2009 had
profound effects on homeowners. According to a Pew Center study, the housing crash had a
disproportionate effect on minority homeowners, with inflation-adjusted median net worth
falling by 66 percent for Hispanic household and 53 percent for African-American households.10
There has been ample literature and media coverage of the housing crash. Congressional
committees—including a subcommittee of this Committee—investigated the root causes of these
problems, attempting to determine why and how they happened.11 In addition, the D.O.J initiated
law-enforcement investigations of the major mortgage service's 12 On February 9, 2012, the
D.O.J announced a $25 billion agreement with the five largest mortgage service's to settle claims
related to mortgage loan servicing and foreclosures.
13 The agreement mandated that the financial institutions—Bank of America Corporation, J.P Morgan Chase & Co., Wells Fargo &
Co., Citigroup Inc., and Ally Financial, Inc.—collectively pay “$20 billion toward various forms
of financial relief to homeowners.”14
After the 2012 settlement, the D.O.J shifted its focus to claims related to each bank’s role
in the “issuance of residential mortgage-backed securities.”15 This focus led to three additional
major settlements: J.P Morgan Chase & Co. (J.P Morgan) in November 2013,16 Citigroup Inc.
(Citigroup) in July 2014,17 and Bank of America Corporation (Bank of America) in August
2014.18 Collectively, the three new settlements totaled $36.65 billion in payments from the
banks to various federal and state entities, non-governmental organizations, and in direct
consumer relief. The three settlement agreements shared a number of identical provisions,
though each agreement had distinct variations in certain provisions.
The principal similarity among all three settlements is the D.O.J’s reliance on 12 U.S.C.
§ 1833a, the civil penalties provision of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (F.I.R.R.E.A).19 Prior to the 2009 financial crisis, the F.I.R.R.E.A civil
remedy was a rarely-used enforcement tool to target fraud in the savings and loan industry.20
Since 2009, however, this enforcement tool has emerged as the D.O.J’s “remedy of choice to
investigate and prosecute cases arising out of the recent financial crisis.”21 Using this authority,
the D.O.J collected a total of $11 billion in F.I.R.R.E.A civil penalties from the J.P Morgan, Citigroup,
and Bank of America settlements to be “deposited in the General Fund of the United States
Treasury.”22 Any funds deposited into the General Fund are subject to the congressional
appropriations process governed by Article I of the U.S. Constitution.23 The banks also resolved
claims brought by federal regulators such as the National Credit Union Administration, Federal Deposit Insurance Corporation, Federal Housing and Finance Agency, Federal Housing
Administration, and the Securities and Exchange Commission.24
In addition to the F.I.R.R.E.A civil penalties, all three bank settlements include provisions
related to claims bought by individual states, and each bank is required to disburse a specific
amount of money for the purposes of consumer relief. The settlement agreements did not require
these funds to be deposited in the Treasury’s General Fund—unlike the F.I.R.R.E.A civil penalties.
Accordingly, these portions of the settlement funds were not subject to any congressional review
or control.
A. J.P Morgan Chase Settlement
In November 2013, J.P Morgan Chase & Co. settled with the D.O.J for $13 billion. 26 According to the J.P.Morgan settlement agreement, the D.O.J “conducted investigations of the packaging, marketing, sale and issuance of residential mortgage-backed securities by J.P Morgan, The Bear Stearns Companies, Inc. and Washington Mutual Bank between 2005 and 2008.”27 Of the $13 billion, J.P Morgan agreed to pay $9 billion to federal regulators and individual states, as well as another $4 billion in consumer relief.28 J.P Morgan did not admit liability as a part of the settlement.
F.I.R.R.E.A Civil Penalty $2,000,000,000.00
Federal Government
Entity Settlements 29 $5,932,989,690.73
Combined Individual
State Settlements 30 $1,067,010,309.27
TOTAL $13,000,000,000.00
The settlement agreement also specified how J.P Morgan would receive credit toward satisfying its $4 billion direct consumer relief obligation. According to the Annex 2 of the agreement, J.P Morgan could receive credit towards its consumer relief obligation in the following ways:
• modifying existing mortgages through forgiveness and forbearance;
• rate reduction and refinancing;
• lending to low to moderate income home buyers and other areas; and
• funding anti-blight measures.31
Each category includes subcategories related to specific methods of disbursing funds.32 The agreement requires J.P Morgan to disburse a minimum of $2 billion for loan forgiveness and forbearance, defined as relief given directly to qualified homeowners with mortgages serviced by J.P Morgan. 33 The remainder of the consumer relief funds may be directed to any category at the bank’s choosing.34
Under the terms of the settlement agreement, if J.P Morgan fails to pay out all $4 billion in required consumer relief by 2018, the bank is required to pay one organization, Neighbor Works America, the remaining balance.35 According to the D.O.J, the inclusion of Neighbor Works as the recipient of settlement funds “was a negotiated term of the settlement agreement between the parties.”36 As of June 30, 2015, J.P Morgan had satisfied $3.56 billion out of $4 billion in consumer relief.37 According to the bank, it plans to complete all consumer relief distributions in 2016.38
The most notable difference in J.P Morgan’s settlement agreement as compared to the settlements with Bank of America and Citigroup is that J.P Morgan’s agreement did not require the bank to donate funds to any third-party groups. The settlement’s anti-blight option includes a provision that allows J.P Morgan to receive credit towards the settlement total by donating funds “to capitalize community equity restoration funds or substantially similar community redevelopment activities.”39 This provision allowed J.P Morgan, if it desired, to donate money to a variety of organizations rather than directly to homeowners impacted by the housing crisis. As demonstrated in the monitor reports, however, J.P Morgan has yet to disburse any funds using this provision of the settlement agreement to date. 40
FIRREA Civil Penalty $4,000,000,000.00
Federal Government
Entity Settlement (FDIC) $208,250,000.00
Combined Individual
State Settlements 44 $291,750,000.00
TOTAL $7,000,000,000.00
Annex 2 of the Citigroup settlement agreement describes the five categories that will satisfy the bank’s obligation to pay $2.5 billion in consumer relief funds. 45 Citigroup may:
• provide loan modifications in the form of forgiveness or forbearance; 46
• provide rate reductions or refinancing to homeowners; 47
• earn credit towards the consumer relief requirements by lending to low to moderate income home buyers; 48
• disburse settlement funds towards community reinvestment and neighborhood stabilization projects; 49 and
• disburse funds towards affordable rental housing.50
The settlement and associated Annex 2 detail the minimum amounts that Citigroup must pay out to certain categories. For example, Citigroup is required to disburse a minimum of $820 million of the $2.5 billion in consumer relief funds to any of the loan modification options or for “forgiveness of principal associated with a property where foreclosure is not pursued and liens are released.”51 Citigroup is similarly required to put a minimum of $299 million towards rate reduction.52 Citigroup must take a $180 million loss—and thereby deduct $180 million from its overall obligation—by providing funds to support affordable rental housing.53 Finally, the settlement agreement requires Citigroup to pay a minimum of $25 million in donations to Community Development Financial Institutions, $15 million to state-based Interest on Lawyers’ Trust Account organizations, and $10 million to HUD-approved housing counseling agencies.54
As of June 30, 2015, Citigroup distributed $689 million worth of consumer relief out of the required $2.5 billion.55 According to the latest monitor report, filed in January 2016, Citigroup has yet to disburse funds to any third-party groups. 56 The bank has completed its disbursements primarily related to homeowner relief in the form of first lien principal forgiveness, rate reductions or refinancing, and principal forgiveness where foreclosure is not pursed.57
FIRREA Civil Penalty $5,000,000,000.00
Federal Government
Entity Settlements $3,216,840,000.00
Combined Individual
State Settlements $943,000,000.00
Tax Relief Payment $490,160,000.00
TOTAL $16,650,000,000.00
Like the other settlement agreements, Annex 2 of the Bank of America settlement agreement describes categories through which Bank of America can fulfill its $7 billion consumer relief obligation.61 Specifically, the bank can satisfy its consumer relief obligations in the following ways:
• modification through loan forgiveness and loan forbearance;
• lending to low to moderate income home buyers;
• community reinvestment and neighborhood stabilization; and
• affordable rental housing.62
Bank of America is required to provide a minimum of $2.15 billion in first lien principal forgiveness, $50 million in donations to community development financial institutions, $30 million in state-based Interest on Lawyers’ Trust Account organizations, and $20 million in donations to HUD-approved housing counseling agencies.63 In addition, Bank of America is required to take a $100 million loss in support of affordable rental housing.64
Lastly, Bank of America is required to provide its settlement monitor with over $490 million to establish a tax relief fund to pay for “a portion of [a homeowner’s] potential federal income tax liability associated with the income from discharge of indebtedness.”65 In other words, a homeowner who is assessed a greater tax liability due to mortgage debt relief would have an avenue to pursue tax relief from the bank. According to the settlement agreement, if Congress were to extend the Mortgage Forgiveness Debt Relief Act of 2007 prior to the end of 2015, the agreement required any money remaining in the tax relief fund to go to state-based Interest on Lawyers’ Trust Account (I.O.L.T.A) organizations (75% of the balance) and NeighborWorks America (25% of the balance).66 Congress passed the Protecting Americans from Tax Hikes Act of 2015, extending tax relief to homeowners who received principal forgiveness.67 As a result, on February 10, 2016, Bank of America’s monitor disbursed $122,540,000 to Neighbor Works America. 68
Leveraging the settlement process under threat of prosecution, the D.O.J secured the banks’ agreement to provide consumer relief funds to third-party groups, rather than directly to individuals who were injured by the crash of the housing market. This course of action raises two primary concerns. First, the use of these settlements to create incentives for shaping broader housing policy shows a disregard for separation of powers considerations inherent in the U.S. Constitution. Second, the D.O.J’s settlements divert funds away from harmed individuals or the U.S. Treasury’s General Fund, depriving Congress of any meaningful ability to conduct oversight of these funds after they have been disbursed to third-party groups. As demonstrated below, without the proper oversight, the opportunity for misuse of millions of dollars increases significantly and the ultimate question of whether funds were spent effectively by such third party groups may never be answered.
A. The D.O.J avoided Congress and the courts to pursue policy outcomes through preindictment settlements
The D.O.J, as the federal government’s representative in criminal and civil suits affecting the interests of the United States, has the ability to enter into settlements with other parties. This authority is not in question. A more troubling issue, however, is the wisdom of executing settlement agreements that effectuate preferred policy outcomes outside of Congress and the courts. In particular, the decisions to require the banks to disburse money to certain third-party groups, rather than collecting the fines that are appropriately subject to the congressional appropriations process, demonstrates a troubling disregard for separation of powers.
According to the D.O.J, large financial institutions like J.P Morgan, Citigroup, and Bank of America agreed to multi-billion dollar settlements that included consumer-relief provisions that “likely could not have been ordered by a court, even if the government had prevailed at trial.”77 This acknowledgement is startling. It describes how the D.O.J used the settlement process to achieve policy goals—including the distribution of hundreds of millions of dollars from private companies to third-party housing counseling groups—that would not have been possible in litigation. In other words, the D.O.J used the threat of litigation—and the corresponding financial and reputation costs—to cause the banks to take actions that a court would not have ordered them to do.
The federal government’s use of lawsuits to pursue policy goals is not new. In 1999, Senator Orrin Hatch, then-Chairman of the Senate Judiciary Committee, convened a hearing to examine whether lawsuits against private companies—in that case, tobacco, gun, and lead paint manufacturers—were in the public interest.78 At the time, the federal government was a participant in large-scale tort cases against the tobacco industry.79 One witness, law professor Jonathan Turley, opined on an issue in the government’s litigation with tobacco companies then that is similar to the D.O.J’s recent settlements with major financial institutions. Professor Turley noted that while the government sought to identify a primary bad actor in the tobacco cases, the litigation in reality “involved complex questions of the actual costs of this product [tobacco] on the federal and state government.”80 Here, in the context of the housing settlements, there are complex questions about the causes and costs of the financial crisis. Many historians and commentators have weighed in on these issues, but there is no consensus view on exact reasons that caused the crises. 81
Professor Turley also explained that the tobacco litigation “raises questions of the government’s own culpability in the subsidization and taxation of an industry that is now targeted for damages.”82 This same analysis rings true in the context of the housing crash. Indeed, there is evidence that the federal government’s own affordable housing policies combined with government-sponsored support of “Fannie Mae’s and Freddie Mac’s dominance in the secondary mortgage market” contributed to the housing market crash.83 In this way, Professor Turley’s observations about the government seeking damages for conduct it previously gave incentive to are particularly apt.
A more fundamental concern with the D.O.J’s housing settlements is that the executive branch is using the settlements beyond the mere enforcement of the law. The executive branch is using the settlements to push policy goals, including funding self-selected third-party groups. Professor Turley articulated this concern in 1999 as well, explaining that the American constitutional framework is “designed to compel the two political branches, sometimes against the inclinations of their leaders, to deal with each other in an open and deliberative way.”84 Congress passes appropriations permitting expenditures by the executive branch, while the executive branch enforces and implements the spending priorities of Congress. As Professor Turley stated, “once either political branch circumvents the other branch in the process, the center of gravity for the Madisonian system is displaced with potentially dangerous consequences.”85
Here, the D.O.J is inserting its spending priorities into the settlements with large financial institutions, requiring banks to disburse funds to third-party organizations. The D.O.J has picked winners—recipients of funds that otherwise could have been deposited in the General Fund of the Treasury—and losers—the entities that were not chosen. Those entities that were unaware of the opportunity to receive settlement funds will not receive them; those organizations that were fortunate to be on the HUD-approved list prior to these settlements will enjoy an opportunity not widely available to other organizations. Although the D.O.J creates the appearance of transparency by using a predetermined list of organizations, the use of such a list necessarily narrows the potential recipients of the funds from the entire universe of recipients.
A paucity of transparency in the settlement process is precisely the criticism levied by the Economist, which characterized the settlements as the “new” way “that regulators and prosecutors are in effect conducting closed door trials.”86 The allegations levied against the financial institutions never make it to trial, settling before they ever reached the trier of fact. There is no determination of actual wrongdoing made in a public fact-finding. The reliance on settlement agreements to dole out policy-based goals, according to one legal commentator, is a “systemic flaw ” and “severely skews the incentives that each party has to let a jury (or judge) decide the merits” of the case.87 The layer of secrecy built into the settlement process adds to this concern. As the Economist noted, “perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame.”88
The D.O.J could have required the banks to pay more in penalties to federal agencies or directly to the Treasury’s General Fund. In such circumstances, Congress retains a measure of oversight and control—and ultimately, accountability—into how the funds are expended and
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A. J.P Morgan Chase Settlement
In November 2013, J.P Morgan Chase & Co. settled with the D.O.J for $13 billion. 26 According to the J.P.Morgan settlement agreement, the D.O.J “conducted investigations of the packaging, marketing, sale and issuance of residential mortgage-backed securities by J.P Morgan, The Bear Stearns Companies, Inc. and Washington Mutual Bank between 2005 and 2008.”27 Of the $13 billion, J.P Morgan agreed to pay $9 billion to federal regulators and individual states, as well as another $4 billion in consumer relief.28 J.P Morgan did not admit liability as a part of the settlement.
J.P Morgan Chase Settlement
November 2013
Direct Consumer Relief $4,000,000,000.00 F.I.R.R.E.A Civil Penalty $2,000,000,000.00
Federal Government
Entity Settlements 29 $5,932,989,690.73
Combined Individual
State Settlements 30 $1,067,010,309.27
TOTAL $13,000,000,000.00
The settlement agreement also specified how J.P Morgan would receive credit toward satisfying its $4 billion direct consumer relief obligation. According to the Annex 2 of the agreement, J.P Morgan could receive credit towards its consumer relief obligation in the following ways:
• modifying existing mortgages through forgiveness and forbearance;
• rate reduction and refinancing;
• lending to low to moderate income home buyers and other areas; and
• funding anti-blight measures.31
Each category includes subcategories related to specific methods of disbursing funds.32 The agreement requires J.P Morgan to disburse a minimum of $2 billion for loan forgiveness and forbearance, defined as relief given directly to qualified homeowners with mortgages serviced by J.P Morgan. 33 The remainder of the consumer relief funds may be directed to any category at the bank’s choosing.34
Under the terms of the settlement agreement, if J.P Morgan fails to pay out all $4 billion in required consumer relief by 2018, the bank is required to pay one organization, Neighbor Works America, the remaining balance.35 According to the D.O.J, the inclusion of Neighbor Works as the recipient of settlement funds “was a negotiated term of the settlement agreement between the parties.”36 As of June 30, 2015, J.P Morgan had satisfied $3.56 billion out of $4 billion in consumer relief.37 According to the bank, it plans to complete all consumer relief distributions in 2016.38
The most notable difference in J.P Morgan’s settlement agreement as compared to the settlements with Bank of America and Citigroup is that J.P Morgan’s agreement did not require the bank to donate funds to any third-party groups. The settlement’s anti-blight option includes a provision that allows J.P Morgan to receive credit towards the settlement total by donating funds “to capitalize community equity restoration funds or substantially similar community redevelopment activities.”39 This provision allowed J.P Morgan, if it desired, to donate money to a variety of organizations rather than directly to homeowners impacted by the housing crisis. As demonstrated in the monitor reports, however, J.P Morgan has yet to disburse any funds using this provision of the settlement agreement to date. 40
B. Citigroup Inc. Settlement
In July 2014, Citigroup settled with the D.O.J for $7 billion.
41 According to the settlement
agreement, the D.O.J “conducted investigations of the packaging, marketing, sale, structuring,
arrangement, and issuance of residential mortgage-backed securities and collateralize debt
obligations by Citigroup between 2006 and 2007.”42 Of the total settlement amount, Citigroup
agreed to pay $4 billion as a “civil monetary penalty,” $2.5 billion in the form of consumer
relief, and the remainder to settle F.D.I.C and individual state claims.43 Citigroup did not admit
liability as a part of the settlement.
Citigroup Settlement
July 2014
Direct Consumer Relief $2,500,000,000.00 FIRREA Civil Penalty $4,000,000,000.00
Federal Government
Entity Settlement (FDIC) $208,250,000.00
Combined Individual
State Settlements 44 $291,750,000.00
TOTAL $7,000,000,000.00
Annex 2 of the Citigroup settlement agreement describes the five categories that will satisfy the bank’s obligation to pay $2.5 billion in consumer relief funds. 45 Citigroup may:
• provide loan modifications in the form of forgiveness or forbearance; 46
• provide rate reductions or refinancing to homeowners; 47
• earn credit towards the consumer relief requirements by lending to low to moderate income home buyers; 48
• disburse settlement funds towards community reinvestment and neighborhood stabilization projects; 49 and
• disburse funds towards affordable rental housing.50
The settlement and associated Annex 2 detail the minimum amounts that Citigroup must pay out to certain categories. For example, Citigroup is required to disburse a minimum of $820 million of the $2.5 billion in consumer relief funds to any of the loan modification options or for “forgiveness of principal associated with a property where foreclosure is not pursued and liens are released.”51 Citigroup is similarly required to put a minimum of $299 million towards rate reduction.52 Citigroup must take a $180 million loss—and thereby deduct $180 million from its overall obligation—by providing funds to support affordable rental housing.53 Finally, the settlement agreement requires Citigroup to pay a minimum of $25 million in donations to Community Development Financial Institutions, $15 million to state-based Interest on Lawyers’ Trust Account organizations, and $10 million to HUD-approved housing counseling agencies.54
As of June 30, 2015, Citigroup distributed $689 million worth of consumer relief out of the required $2.5 billion.55 According to the latest monitor report, filed in January 2016, Citigroup has yet to disburse funds to any third-party groups. 56 The bank has completed its disbursements primarily related to homeowner relief in the form of first lien principal forgiveness, rate reductions or refinancing, and principal forgiveness where foreclosure is not pursed.57
C. Bank of America
Corporation Settlement
In August 2014, Bank of America settled with the D.O.J for $16.65 billion.58 This
settlement agreement was premised on the D.O.J’s inquiry into “the packaging, origination,
marketing, sale, structuring, arrangement, and issuance of residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs).”59 The settlement agreement required
Bank of America to pay more than $8.2 billion in civil monetary penalties to federal entities and
individual states.60 Bank of America did not admit liability as a part of the settlement agreement.
Bank of America Settlement
August 2014
Direct Consumer Relief $7,000,000,000.00 FIRREA Civil Penalty $5,000,000,000.00
Federal Government
Entity Settlements $3,216,840,000.00
Combined Individual
State Settlements $943,000,000.00
Tax Relief Payment $490,160,000.00
TOTAL $16,650,000,000.00
Like the other settlement agreements, Annex 2 of the Bank of America settlement agreement describes categories through which Bank of America can fulfill its $7 billion consumer relief obligation.61 Specifically, the bank can satisfy its consumer relief obligations in the following ways:
• modification through loan forgiveness and loan forbearance;
• lending to low to moderate income home buyers;
• community reinvestment and neighborhood stabilization; and
• affordable rental housing.62
Bank of America is required to provide a minimum of $2.15 billion in first lien principal forgiveness, $50 million in donations to community development financial institutions, $30 million in state-based Interest on Lawyers’ Trust Account organizations, and $20 million in donations to HUD-approved housing counseling agencies.63 In addition, Bank of America is required to take a $100 million loss in support of affordable rental housing.64
Lastly, Bank of America is required to provide its settlement monitor with over $490 million to establish a tax relief fund to pay for “a portion of [a homeowner’s] potential federal income tax liability associated with the income from discharge of indebtedness.”65 In other words, a homeowner who is assessed a greater tax liability due to mortgage debt relief would have an avenue to pursue tax relief from the bank. According to the settlement agreement, if Congress were to extend the Mortgage Forgiveness Debt Relief Act of 2007 prior to the end of 2015, the agreement required any money remaining in the tax relief fund to go to state-based Interest on Lawyers’ Trust Account (I.O.L.T.A) organizations (75% of the balance) and NeighborWorks America (25% of the balance).66 Congress passed the Protecting Americans from Tax Hikes Act of 2015, extending tax relief to homeowners who received principal forgiveness.67 As a result, on February 10, 2016, Bank of America’s monitor disbursed $122,540,000 to Neighbor Works America. 68
D. Other Housing-Related Settlements
Beyond the three aforementioned settlements, the D.O.J has settled or is in the process of
settling with other financial institutions. On February 3, 2015, Standard & Poor’s Financial
Services L.L.P (S&P) agreed to settle for $1.375 billion, including a $687.5 million F.I.R.R.E.A civil
penalty related to S&P’s ratings of R.M.B.S and C.D.O's.69 On February 5, 2016, the D.O.J
announced a $470 million settlement with HSBC Bank USA NA (HSBC) “to address mortgage
origination, servicing and foreclosure abuses.”70 This settlement requires HSBC to pay $100
million to settle claims by federal entities and individual states.71 The remaining $370 million
will be disbursed by HSBC in the form of consumer relief.72 Morgan Stanley also settled with the D.O.J and other entities related to the housing crisis, paying $3.2 billion.73 Specifically, the
settlement requires Morgan Stanley to pay a $2.6 billion civil monetary penalty to the federal
government and nearly $600 million to settle claims brought by the states of New York and
Illinois.74 On April 11, 2016, the D.O.J announced a settlement with Goldman Sachs related to
the “marketing, structuring, arrangement, underwriting, issuance and sale of residential
mortgage-backed securities.”75 The agreement is for a total payout of $5.06 billion—$2.385
billion in civil monetary penalties, $875 million to resolve other federal and state claims, and
$1.8 billion in consumer relief.76 These other housing-related settlements are not included in this
analysis because they have not been formally completed, do not involve the distribution of funds
for consumer relief, or the entity has yet to begin distributing consumer relief funds.
III.
THE JUSTICE DEPARTMENT DISREGARDED THE ROLE OF CONGRESS
AND THE JUDICIARY IN ITS METHOD AND MANNER OF COMPELLING
THE PAYMENT OF FUNDS TO THIRD-PARTY GROUPS Leveraging the settlement process under threat of prosecution, the D.O.J secured the banks’ agreement to provide consumer relief funds to third-party groups, rather than directly to individuals who were injured by the crash of the housing market. This course of action raises two primary concerns. First, the use of these settlements to create incentives for shaping broader housing policy shows a disregard for separation of powers considerations inherent in the U.S. Constitution. Second, the D.O.J’s settlements divert funds away from harmed individuals or the U.S. Treasury’s General Fund, depriving Congress of any meaningful ability to conduct oversight of these funds after they have been disbursed to third-party groups. As demonstrated below, without the proper oversight, the opportunity for misuse of millions of dollars increases significantly and the ultimate question of whether funds were spent effectively by such third party groups may never be answered.
A. The D.O.J avoided Congress and the courts to pursue policy outcomes through preindictment settlements
The D.O.J, as the federal government’s representative in criminal and civil suits affecting the interests of the United States, has the ability to enter into settlements with other parties. This authority is not in question. A more troubling issue, however, is the wisdom of executing settlement agreements that effectuate preferred policy outcomes outside of Congress and the courts. In particular, the decisions to require the banks to disburse money to certain third-party groups, rather than collecting the fines that are appropriately subject to the congressional appropriations process, demonstrates a troubling disregard for separation of powers.
According to the D.O.J, large financial institutions like J.P Morgan, Citigroup, and Bank of America agreed to multi-billion dollar settlements that included consumer-relief provisions that “likely could not have been ordered by a court, even if the government had prevailed at trial.”77 This acknowledgement is startling. It describes how the D.O.J used the settlement process to achieve policy goals—including the distribution of hundreds of millions of dollars from private companies to third-party housing counseling groups—that would not have been possible in litigation. In other words, the D.O.J used the threat of litigation—and the corresponding financial and reputation costs—to cause the banks to take actions that a court would not have ordered them to do.
The federal government’s use of lawsuits to pursue policy goals is not new. In 1999, Senator Orrin Hatch, then-Chairman of the Senate Judiciary Committee, convened a hearing to examine whether lawsuits against private companies—in that case, tobacco, gun, and lead paint manufacturers—were in the public interest.78 At the time, the federal government was a participant in large-scale tort cases against the tobacco industry.79 One witness, law professor Jonathan Turley, opined on an issue in the government’s litigation with tobacco companies then that is similar to the D.O.J’s recent settlements with major financial institutions. Professor Turley noted that while the government sought to identify a primary bad actor in the tobacco cases, the litigation in reality “involved complex questions of the actual costs of this product [tobacco] on the federal and state government.”80 Here, in the context of the housing settlements, there are complex questions about the causes and costs of the financial crisis. Many historians and commentators have weighed in on these issues, but there is no consensus view on exact reasons that caused the crises. 81
Professor Turley also explained that the tobacco litigation “raises questions of the government’s own culpability in the subsidization and taxation of an industry that is now targeted for damages.”82 This same analysis rings true in the context of the housing crash. Indeed, there is evidence that the federal government’s own affordable housing policies combined with government-sponsored support of “Fannie Mae’s and Freddie Mac’s dominance in the secondary mortgage market” contributed to the housing market crash.83 In this way, Professor Turley’s observations about the government seeking damages for conduct it previously gave incentive to are particularly apt.
A more fundamental concern with the D.O.J’s housing settlements is that the executive branch is using the settlements beyond the mere enforcement of the law. The executive branch is using the settlements to push policy goals, including funding self-selected third-party groups. Professor Turley articulated this concern in 1999 as well, explaining that the American constitutional framework is “designed to compel the two political branches, sometimes against the inclinations of their leaders, to deal with each other in an open and deliberative way.”84 Congress passes appropriations permitting expenditures by the executive branch, while the executive branch enforces and implements the spending priorities of Congress. As Professor Turley stated, “once either political branch circumvents the other branch in the process, the center of gravity for the Madisonian system is displaced with potentially dangerous consequences.”85
Here, the D.O.J is inserting its spending priorities into the settlements with large financial institutions, requiring banks to disburse funds to third-party organizations. The D.O.J has picked winners—recipients of funds that otherwise could have been deposited in the General Fund of the Treasury—and losers—the entities that were not chosen. Those entities that were unaware of the opportunity to receive settlement funds will not receive them; those organizations that were fortunate to be on the HUD-approved list prior to these settlements will enjoy an opportunity not widely available to other organizations. Although the D.O.J creates the appearance of transparency by using a predetermined list of organizations, the use of such a list necessarily narrows the potential recipients of the funds from the entire universe of recipients.
A paucity of transparency in the settlement process is precisely the criticism levied by the Economist, which characterized the settlements as the “new” way “that regulators and prosecutors are in effect conducting closed door trials.”86 The allegations levied against the financial institutions never make it to trial, settling before they ever reached the trier of fact. There is no determination of actual wrongdoing made in a public fact-finding. The reliance on settlement agreements to dole out policy-based goals, according to one legal commentator, is a “systemic flaw ” and “severely skews the incentives that each party has to let a jury (or judge) decide the merits” of the case.87 The layer of secrecy built into the settlement process adds to this concern. As the Economist noted, “perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame.”88
The D.O.J could have required the banks to pay more in penalties to federal agencies or directly to the Treasury’s General Fund. In such circumstances, Congress retains a measure of oversight and control—and ultimately, accountability—into how the funds are expended and
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1 Appendix A, Ex. 1, Letter from Hon. Ron Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental
Affairs, to Hon. Stuart Delery, Acting Assoc. Att’y Gen., Dep’t of Justice (March 11, 2015).
2 Appendix A, Ex. 2, Letter, from Hon. Peter J. Kadzik, Assistant Att’y Gen., Dep’t of Justice, to Hon. Ron Johnson,
Chairman, S. Comm. on Homeland Sec.& Governmental Affairs (March 25, 2015).
3 Appendix A, Ex. 3, Letter from Hon. Ron Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental
Affairs, to Hon. Stuart Delery, Acting Assoc. Att’y Gen., Dep’t of Justice (May 4, 2015).
4 Appendix A, Ex. 4, Letter, from Hon. Peter J. Kadzik, Assistant Att’y Gen., Dep’t of Justice, to Hon. Ron Johnson,
Chairman, S. Comm. on Homeland Sec.& Governmental Affairs (May 29, 2015).
5 Appendix A, Ex. 5, Letter from Hon. Ron Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental
Affairs, to Hon. Stuart Delery, Acting Assoc. Att’y Gen., Dep’t of Justice (July 28, 2015).
6 Appendix A, Ex. 6, Letter from Hon. Peter J. Kadzik, Assistant Att’y Gen., U.S. Dep’t of Justice, to Hon. Ron
Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental Affairs (Aug. 24, 2015)
7 Appendix A, Ex. 7, Letter from Hon. Ron Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental
Affairs, to Eric Green, Monitor, 2014 Bank of America Mortgage Settlement (July 28, 2015); Letter from Hon. Ron
Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental Affairs, to Joseph Smith, Monitor, JPMorgan
Chase RMBS Settlement (July 28, 2015) (on file with Comm.); Letter from Hon. Ron Johnson, Chairman, S.
Comm. on Homeland Sec. & Governmental Affairs, to Hon. Tom Perrelli, Monitor, 2014 Citigroup Inc. Mortgage
Settlement (July 28, 2015).
8 Appendix A, Ex. 8, Letter from Joseph Smith, Monitor, JPMorgan Chase RMBS Settlement, to Hon. Ron Johnson,
Chairman, S. Comm. on Homeland Sec. & Governmental Affairs (Aug. 7, 2015)
9 Appendix A, Ex. 9, Letter from Eric Green, Monitor, 2014 Bank of America Mortgage Settlement, to Hon. Ron
Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental Affairs (Aug. 11, 2015); Letter from Hon. Tom
Perrelli, Monitor, 2014 Citigroup Inc. Mortgage Settlement, to Hon. Ron Johnson, Chairman, S. Comm. on
Homeland Sec. & Governmental Affairs (Aug. 11, 2015).
10 Rakesh Kochhar, Richard Fry, and Paul Taylor, Wealth Gaps Rise to Record Heights Between Whites, Blacks and
Hispanics, PEW RESEARCH CENTER at 1 (July 26, 2011).
11 See e.g., Permanent Subcomm. on Investigations Report, Wall Street and the Financial Crisis: Anatomy of a
Financial Collapse, Majority and Minority Staff Report (April 13, 2011). Specifically, the PSI Report determined
that “the most immediate trigger to the financial crisis was the July 2007 decision by Moody’s and S&P to
downgrade hundreds of [residential mortgage-backed securities] and [collateralized debt obligation] securities.” Id.
at 45.
12 Press Release, U.S. Dep’t of Justice, Federal Government and State Attorneys General Reach $25 Billion
Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses
(Feb. 9, 2012) (agreement “is the result of extensive investigations by federal agencies, including the Department of
Justice” and other federal agencies and state attorneys general).
13 Id. In this particular agreement, the DOJ negotiated on behalf of the Department of Housing and Urban
Development and 49 state attorneys general. Press Release, U.S. Dep’t of Justice, $25 Billion Mortgage Servicing
Agreement Filed in Federal Court (March 12, 2012).
14 Press Release, U.S. Dep’t of Justice, $25 Billion Mortgage Servicing Agreement Filed in Federal Court (March
12, 2012).
15 See Settlement Agreement between JPMorgan Chase & Co. et al., and U.S. Dep’t of Justice et al., at 1 (Nov.
2013) [hereinafter JPMorgan Settlement Agreement]; Settlement Agreement between Citigroup Inc. et al. and U.S.
Dep’t of Justice et al., at 1 (July 2014) [hereinafter Citigroup Settlement Agreement]; and Settlement Agreement
between Bank of America Corporation et al. and U.S. Dep’t of Justice et al., at 1 (Aug. 2014) [hereinafter Bank of
America Settlement Agreement].
16 See JPMorgan Settlement Agreement. The settlement between the DOJ and JPMorgan includes JPMorgan Chase
& Co., The Bear Stearns Companies, Inc., and Washington Mutual Bank. Id.
17 See Citigroup Settlement Agreement.
18 See Bank of America Settlement Agreement. The settlement between DOJ and Bank of America includes Bank of
America Corporation, Bank of America, N.A., Banc of America Mortgage Securities, and “current and former
subsidiaries and affiliates.” Id. at 1.
19 12 U.S.C. § 1833a.
20 Michael Y. Scudder and Andrew M. Good, The FIRREA Revival: Dredging Up Solutions to the Financial Crisis,
U.S. Chamber Inst. for Legal Reform (Oct. 2014) http://www.instituteforlegalreform.com/uploads/sites/1/firrea.pdf.
21 Id.
22 JPMorgan Settlement Agreement at 3; Citigroup Settlement Agreement at 2; and Bank of America Settlement
Agreement at 6.
23 See U.S. CONST. art. I, § 9, cl. 7.
24 See JPMorgan Settlement Agreement, Citigroup Settlement Agreement, and Bank of America Settlement Agreement.
25 For the purposes of this chart, consumer relief funds include any funds distributed by a bank for the purposes of consumer relief under the terms of the settlement agreement. Federal government funds include any funds paid in relation to the FIRREA civil penalty or to resolve claims by federal entities. State government funds include any funds paid by a bank to settle claims brought by an individual state. Tax Relief Payment is specific to the Bank of America Settlement. Bank of America is required by the settlement to provide $490 million to the bank’s monitor for the purposes of providing tax relief payments to consumers that have increased tax liabilities based on receiving consumer relief funds from the bank.
26 Press Release, U.S. Dep’t of Justice, Federal and State Partners Secure Record $13 Billion Global Settlement with JPMorgan for Misleading Investors About Securities Containing Toxic Mortgages (Nov. 19, 2013).
27 JPMorgan Settlement Agreement at 1. JPMorgan Chase purchased Bear Stearns and Washington Mutual during the financial collapse with the help of federal regulators. See Neil Irwin, Everything You Need to Know About JPMorgan’s $13 Billion Settlement, THE WASHINGTON POST (Nov. 19, 2013) https://www.washingtonpost.com/news/wonk/wp/2013/10/21/everything-you-need-to-know-about-jpmorgans-13- billion-settlement/.
28 JPMorgan Settlement Agreement at 3, 5.
29 The Individual federal entities receiving specific allocations include: the National Credit Union Administration, the Federal Housing Finance Agency (Fannie Mae and Freddie Mac’s conservator), and the Federal Deposit Insurance Corporation. See JPMorgan Settlement at 2.
30 The individual states receiving specific allocations include: California, Delaware, Illinois, Massachusetts, and New York. See JPMorgan Settlement at 4-5.
31 JPMorgan Settlement Agreement, Annex 2 at 2-4.
32 See JPMorgan Settlement Agreement, Annex 2.
33 JPMorgan Settlement Agreement, Annex 2 at 2-3.
34 The JPMorgan settlement agreement requires that $1.2 billion be disbursed for principal forgiveness of the homeowner’s first lien or principal forgiveness of forbearance (categories 1A and 1B). JP Morgan Settlement Agreement, Annex 2 at 2. However, there is a $300 million cap on the credit JPMorgan can earn for principal forgiveness of forbearance (category 1B) as well as a $300 million cap on payment forgiveness (category 1C). Id.
35 JPMorgan Settlement Agreement, Annex 2 at 5.
36 See Appendix A, Ex. 6, Letter from Assistant Att’y Gen. Kadzik, DOJ, to Chairman Johnson at 4 (Aug. 24, 2015).
37 Joseph A. Smith, Jr., Monitor, JPMorgan Settlement Monitor, Consumer Relief through June 30, 2015, 7th Report at 2 (Jan. 12, 2016).
38 Phone Call between Majority Staff, HSGAC, and JPMorgan (Jan. 11, 2016).
39 JPMorgan Settlement Agreement, Annex 2 at 4.
40 Joseph A. Smith, Jr., Monitor, JPMorgan Settlement Monitor, Consumer Relief through June 30, 2015, 7th Report at 2 (Jan. 12, 2016).
41 Citigroup Settlement Agreement, at 2, 4; see also Press Release, Dep’t of Justice, Justice Department, Federal and State Partners Secure Record $7 Billion Global Settlement with Citigroup for Misleading Investors About Securities Containing Toxic Mortgages (July 14, 2014) http://www.justice.gov/opa/pr/justice-department-federal-and-statepartners-secure-record-7-billion-global-settlement.
42 Citigroup Settlement Agreement at 1.
43 Citigroup Settlement Agreement at 2-4.
44 The individual states receiving specific allocations include: California, Delaware, Illinois, Massachusetts, and New York. See Citigroup Settlement Agreement at 2-4 ($102.7 million to California, $92 million to New York, $44 million to Illinois, $45.7 million to Massachusetts, and $7.35 million to Delaware).
45 See Citigroup Settlement Agreement, Annex 2.
46 Citigroup Settlement Agreement, Annex 2 at 2-7.
47 Id. at 8-9.
48 Id. at 10
49 Id. at 11-12.
50 Id. at 13.
51 Id. at 7, 11.
52 Id. at 8.
53 Id. at 13. The settlement agreement defines loss “as the difference between the fair value and par value, as reflected on the books and records of Citi, on the origination date of the subordinated loan made to facilitate the construction, rehabilitation or preservation of affordable rental multi-family housing.” Id. at fn. 23.
54 Id. at 12.
55 Tom Perrelli, Citigroup Monitor, Citi Monitorship Fourth Report, at 18 (Jan. 2016).
56 See Tom Perrelli, Citigroup Monitor, Citi Monitorship Fourth Report.
57 Id at 4. Principal forgiveness where foreclosure is not pursued, menu item 4A of the settlement agreement Annex 2, allows Citigroup to “seek credit when it (i) forgoes its right to foreclose on a property; (ii) forgives all principal associated with the property; and (iii) releases the Citi-held liens associated with the property. Id at 17.
58 Press Release, U.S. Dep’t of Justice, Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis (Aug. 21, 2014) http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financialfraud-leading.
59 Bank of America Settlement Agreement at 1. The DOJ’s agreement with Bank of America included companies acquired by Bank of America: Countrywide Financial Corp., Countrywide Home Loans, Inc., Countrywide Securities Corp., Merrill Lynch, Pierce, Fenner & Smith, Inc., Merrill Lynch Mortgage Lending, Inc., Merrill Lynch Mortgage Investors, Inc., and First Franklin Financial Corp. Id.
60 Bank of America Settlement Agreement at 5-8.
61 Id. at 8.
62 Bank of America Settlement Agreement, Annex 2 at 2-8.
63 Id. at 2, 7.
64 Id. at 8.
65 Id. at 1.
66 Bank of America Settlement Agreement, Annex 3 at 3.
67 The Protecting Americans from Tax Hikes Act of 2015 was included in the Consolidated Appropriations Act, 2016. Pub. L. No. 114-113 (2015); see also Eric Green, Bank of America Monitor, February 29, 2016 Report at 40 (Feb. 29, 2016).
68 Id. at 41.
69 Appendix A, Ex. 6, Letter from Assistant Att’y Gen. Kadzik, DOJ, to Chairman Johnson at 3 (Aug. 24, 2015) (of this, the DOJ retained $20.6 million under the Three Percent Fund statutory authority).
70 Press Release, Dep’t of Justice, Justice Department Reaches $470 Million Joint State-Federal Settlement with HSBC to Address Mortgage Loan Origination, Servicing and Foreclosure Abuses (Feb. 5, 2016) http://www.justice.gov/opa/pr/justice-department-reaches-470-million-joint-state-federal-settlement-hsbc-addressmortgage; see also Lydia Wheeler, HSBC Will Pay $470M to Settle Mortgage, Foreclosure Abuses, THE HILL (Feb. 5, 2016) http://thehill.com/regulation/finance/268391-hsbc-will-pay-470m-to-settle-motgage-forclosure-abuses; Rupert Neate, HSBC Fined $470m for 'Abusive Mortgage Practices' During 2008 Crisis, THE GUARDIAN (Feb. 5, 2016) http://www.theguardian.com/business/2016/feb/05/hsbc-fined-morgage-practices-financial-crisis; Kedar Grandhi, HSBC Fined $470m in Relation to Its Mortgage Practices During the 2007-2009 American Housing Crisis, INT’L BUS. TIMES (Feb. 6, 2016), http://www.ibtimes.co.uk/hsbc-fined-470m-relation-its-mortgage-practicesduring-2007-2009-american-housing-crisis-1542321.
71 Press Release, U.S. Dep’t of Justice, Justice Department Reaches $470 Million Joint State-Federal Settlement with HSBC to Address Mortgage Loan Origination, Servicing and Foreclosure Abuses (Feb. 5, 2016).
72 Id.
73 Christie Smythe, ‘We Are Running Under the Radar': Morgan Stanley in $3.2 Billion Mortgage-Bond Pact, BLOOMBERG (Feb. 11, 2016) http://www.bloomberg.com/news/articles/2016-02-11/morgan-stanley-reaches-3-2- billion-pact-over-mortgage-bonds.
74 Renae Merle, Morgan Stanley Agrees to $3.2 Billion Settlement for Selling Risky Mortgages, THE WASHINGTON POST (Feb. 11, 2016) (New York receives $550 million and Illinois receives $22.5 million) https://www.washingtonpost.com/news/business/wp/2016/02/11/morgan-stanley-agrees-to-3-2-billion-settlementfor-selling-risky-mortgages/.
75 Settlement Agreement between The Goldman Sachs Group, Inc. et al., and U.S. Dep’t of Justice et al., at 1 (Apr. 2016); see also Press Release, Goldman Sachs, Goldman Sachs Announces a Settlement in Principle with the RMBS Working Group (Jan. 14, 2016) http://www.goldmansachs.com/media-relations/pressreleases/current/announcement-14-jan-2016.html.
76 Press Release, Dep’t of Justice, Goldman Sachs Agrees to Pay More than $5 Billion in Connection with Its Sale of Residential Mortgage Backed Securities (Apr. 11, 2016) https://www.justice.gov/opa/pr/goldman-sachs-agrees-paymore-5-billion-connection-its-sale-residential-mortgage-backed; see also Sudarshan Varadhan and Suzanne Barlyn, Goldman Sachs Settlement on Mortgage-Backed Bonds to Hit Earnings, REUTERS (Jan. 14, 2016) http://www.reuters.com/article/us-goldman-sachs-settlement-idUSKCN0US2SI20160114.
77 Appendix A, Ex. 2, Letter, from Assistant Att’y Gen. Kadzik, DOJ, to Chairman Johnson at 2 (March 25, 2015).
78 Big Government Lawsuits: Are Policy-Driven Lawsuits in the Public Interest?, Hearing before the S. Comm. on the Judiciary, 106th Cong. (Nov. 2, 1999) [hereinafter Lawsuit Hearing].
79 See id.
80 Id. at 29 (opening statement of Prof. Jonathan Turley).
81 Numerous articles, interviews, and reports have identified a variety of contributing factors, including: high risk lending, regulatory failures, inflated credit ratings, economic adversity, affordability and land-use regulations, predatory lenders, predatory borrowers, and overcommitted borrowers. See e.g., Permanent Subcomm. on Investigations Report, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, Majority and Minority Staff Report (April 13, 2011); Ronald D. Utt, The Subprime Mortgage Market Collapse: A Primer on the Causes and Possible Solutions, The Heritage Foundation (Apr. 22, 2008) http://www.heritage.org/research/reports/2008/04/the-subprime-mortgage-market-collapse-a-primer-on-the-causesand-possible-solutions; Fernando Ferreira and Joseph Gyourko, A New Look at the U.S. Foreclosure Crisis, Nat’l Bureau of Econ. Research (June 2015).
82 Lawsuit Hearing at 29 (opening statement of Prof. Jonathan Turley).
83 H. Comm. on Oversight and Gov’t Reform Report, The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008, at 3 (July 1, 2009, updated May 12, 2010) https://oversight.house.gov/report/the-role-of-government-affordable-housing-policy-in-creating-the-globalfinancial-crisis-of-2008/.
84 Lawsuit Hearing at 32 (opening statement of Prof. Jonathan Turley).
85 Id.
24 See JPMorgan Settlement Agreement, Citigroup Settlement Agreement, and Bank of America Settlement Agreement.
25 For the purposes of this chart, consumer relief funds include any funds distributed by a bank for the purposes of consumer relief under the terms of the settlement agreement. Federal government funds include any funds paid in relation to the FIRREA civil penalty or to resolve claims by federal entities. State government funds include any funds paid by a bank to settle claims brought by an individual state. Tax Relief Payment is specific to the Bank of America Settlement. Bank of America is required by the settlement to provide $490 million to the bank’s monitor for the purposes of providing tax relief payments to consumers that have increased tax liabilities based on receiving consumer relief funds from the bank.
26 Press Release, U.S. Dep’t of Justice, Federal and State Partners Secure Record $13 Billion Global Settlement with JPMorgan for Misleading Investors About Securities Containing Toxic Mortgages (Nov. 19, 2013).
27 JPMorgan Settlement Agreement at 1. JPMorgan Chase purchased Bear Stearns and Washington Mutual during the financial collapse with the help of federal regulators. See Neil Irwin, Everything You Need to Know About JPMorgan’s $13 Billion Settlement, THE WASHINGTON POST (Nov. 19, 2013) https://www.washingtonpost.com/news/wonk/wp/2013/10/21/everything-you-need-to-know-about-jpmorgans-13- billion-settlement/.
28 JPMorgan Settlement Agreement at 3, 5.
29 The Individual federal entities receiving specific allocations include: the National Credit Union Administration, the Federal Housing Finance Agency (Fannie Mae and Freddie Mac’s conservator), and the Federal Deposit Insurance Corporation. See JPMorgan Settlement at 2.
30 The individual states receiving specific allocations include: California, Delaware, Illinois, Massachusetts, and New York. See JPMorgan Settlement at 4-5.
31 JPMorgan Settlement Agreement, Annex 2 at 2-4.
32 See JPMorgan Settlement Agreement, Annex 2.
33 JPMorgan Settlement Agreement, Annex 2 at 2-3.
34 The JPMorgan settlement agreement requires that $1.2 billion be disbursed for principal forgiveness of the homeowner’s first lien or principal forgiveness of forbearance (categories 1A and 1B). JP Morgan Settlement Agreement, Annex 2 at 2. However, there is a $300 million cap on the credit JPMorgan can earn for principal forgiveness of forbearance (category 1B) as well as a $300 million cap on payment forgiveness (category 1C). Id.
35 JPMorgan Settlement Agreement, Annex 2 at 5.
36 See Appendix A, Ex. 6, Letter from Assistant Att’y Gen. Kadzik, DOJ, to Chairman Johnson at 4 (Aug. 24, 2015).
37 Joseph A. Smith, Jr., Monitor, JPMorgan Settlement Monitor, Consumer Relief through June 30, 2015, 7th Report at 2 (Jan. 12, 2016).
38 Phone Call between Majority Staff, HSGAC, and JPMorgan (Jan. 11, 2016).
39 JPMorgan Settlement Agreement, Annex 2 at 4.
40 Joseph A. Smith, Jr., Monitor, JPMorgan Settlement Monitor, Consumer Relief through June 30, 2015, 7th Report at 2 (Jan. 12, 2016).
41 Citigroup Settlement Agreement, at 2, 4; see also Press Release, Dep’t of Justice, Justice Department, Federal and State Partners Secure Record $7 Billion Global Settlement with Citigroup for Misleading Investors About Securities Containing Toxic Mortgages (July 14, 2014) http://www.justice.gov/opa/pr/justice-department-federal-and-statepartners-secure-record-7-billion-global-settlement.
42 Citigroup Settlement Agreement at 1.
43 Citigroup Settlement Agreement at 2-4.
44 The individual states receiving specific allocations include: California, Delaware, Illinois, Massachusetts, and New York. See Citigroup Settlement Agreement at 2-4 ($102.7 million to California, $92 million to New York, $44 million to Illinois, $45.7 million to Massachusetts, and $7.35 million to Delaware).
45 See Citigroup Settlement Agreement, Annex 2.
46 Citigroup Settlement Agreement, Annex 2 at 2-7.
47 Id. at 8-9.
48 Id. at 10
49 Id. at 11-12.
50 Id. at 13.
51 Id. at 7, 11.
52 Id. at 8.
53 Id. at 13. The settlement agreement defines loss “as the difference between the fair value and par value, as reflected on the books and records of Citi, on the origination date of the subordinated loan made to facilitate the construction, rehabilitation or preservation of affordable rental multi-family housing.” Id. at fn. 23.
54 Id. at 12.
55 Tom Perrelli, Citigroup Monitor, Citi Monitorship Fourth Report, at 18 (Jan. 2016).
56 See Tom Perrelli, Citigroup Monitor, Citi Monitorship Fourth Report.
57 Id at 4. Principal forgiveness where foreclosure is not pursued, menu item 4A of the settlement agreement Annex 2, allows Citigroup to “seek credit when it (i) forgoes its right to foreclose on a property; (ii) forgives all principal associated with the property; and (iii) releases the Citi-held liens associated with the property. Id at 17.
58 Press Release, U.S. Dep’t of Justice, Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis (Aug. 21, 2014) http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financialfraud-leading.
59 Bank of America Settlement Agreement at 1. The DOJ’s agreement with Bank of America included companies acquired by Bank of America: Countrywide Financial Corp., Countrywide Home Loans, Inc., Countrywide Securities Corp., Merrill Lynch, Pierce, Fenner & Smith, Inc., Merrill Lynch Mortgage Lending, Inc., Merrill Lynch Mortgage Investors, Inc., and First Franklin Financial Corp. Id.
60 Bank of America Settlement Agreement at 5-8.
61 Id. at 8.
62 Bank of America Settlement Agreement, Annex 2 at 2-8.
63 Id. at 2, 7.
64 Id. at 8.
65 Id. at 1.
66 Bank of America Settlement Agreement, Annex 3 at 3.
67 The Protecting Americans from Tax Hikes Act of 2015 was included in the Consolidated Appropriations Act, 2016. Pub. L. No. 114-113 (2015); see also Eric Green, Bank of America Monitor, February 29, 2016 Report at 40 (Feb. 29, 2016).
68 Id. at 41.
69 Appendix A, Ex. 6, Letter from Assistant Att’y Gen. Kadzik, DOJ, to Chairman Johnson at 3 (Aug. 24, 2015) (of this, the DOJ retained $20.6 million under the Three Percent Fund statutory authority).
70 Press Release, Dep’t of Justice, Justice Department Reaches $470 Million Joint State-Federal Settlement with HSBC to Address Mortgage Loan Origination, Servicing and Foreclosure Abuses (Feb. 5, 2016) http://www.justice.gov/opa/pr/justice-department-reaches-470-million-joint-state-federal-settlement-hsbc-addressmortgage; see also Lydia Wheeler, HSBC Will Pay $470M to Settle Mortgage, Foreclosure Abuses, THE HILL (Feb. 5, 2016) http://thehill.com/regulation/finance/268391-hsbc-will-pay-470m-to-settle-motgage-forclosure-abuses; Rupert Neate, HSBC Fined $470m for 'Abusive Mortgage Practices' During 2008 Crisis, THE GUARDIAN (Feb. 5, 2016) http://www.theguardian.com/business/2016/feb/05/hsbc-fined-morgage-practices-financial-crisis; Kedar Grandhi, HSBC Fined $470m in Relation to Its Mortgage Practices During the 2007-2009 American Housing Crisis, INT’L BUS. TIMES (Feb. 6, 2016), http://www.ibtimes.co.uk/hsbc-fined-470m-relation-its-mortgage-practicesduring-2007-2009-american-housing-crisis-1542321.
71 Press Release, U.S. Dep’t of Justice, Justice Department Reaches $470 Million Joint State-Federal Settlement with HSBC to Address Mortgage Loan Origination, Servicing and Foreclosure Abuses (Feb. 5, 2016).
72 Id.
73 Christie Smythe, ‘We Are Running Under the Radar': Morgan Stanley in $3.2 Billion Mortgage-Bond Pact, BLOOMBERG (Feb. 11, 2016) http://www.bloomberg.com/news/articles/2016-02-11/morgan-stanley-reaches-3-2- billion-pact-over-mortgage-bonds.
74 Renae Merle, Morgan Stanley Agrees to $3.2 Billion Settlement for Selling Risky Mortgages, THE WASHINGTON POST (Feb. 11, 2016) (New York receives $550 million and Illinois receives $22.5 million) https://www.washingtonpost.com/news/business/wp/2016/02/11/morgan-stanley-agrees-to-3-2-billion-settlementfor-selling-risky-mortgages/.
75 Settlement Agreement between The Goldman Sachs Group, Inc. et al., and U.S. Dep’t of Justice et al., at 1 (Apr. 2016); see also Press Release, Goldman Sachs, Goldman Sachs Announces a Settlement in Principle with the RMBS Working Group (Jan. 14, 2016) http://www.goldmansachs.com/media-relations/pressreleases/current/announcement-14-jan-2016.html.
76 Press Release, Dep’t of Justice, Goldman Sachs Agrees to Pay More than $5 Billion in Connection with Its Sale of Residential Mortgage Backed Securities (Apr. 11, 2016) https://www.justice.gov/opa/pr/goldman-sachs-agrees-paymore-5-billion-connection-its-sale-residential-mortgage-backed; see also Sudarshan Varadhan and Suzanne Barlyn, Goldman Sachs Settlement on Mortgage-Backed Bonds to Hit Earnings, REUTERS (Jan. 14, 2016) http://www.reuters.com/article/us-goldman-sachs-settlement-idUSKCN0US2SI20160114.
77 Appendix A, Ex. 2, Letter, from Assistant Att’y Gen. Kadzik, DOJ, to Chairman Johnson at 2 (March 25, 2015).
78 Big Government Lawsuits: Are Policy-Driven Lawsuits in the Public Interest?, Hearing before the S. Comm. on the Judiciary, 106th Cong. (Nov. 2, 1999) [hereinafter Lawsuit Hearing].
79 See id.
80 Id. at 29 (opening statement of Prof. Jonathan Turley).
81 Numerous articles, interviews, and reports have identified a variety of contributing factors, including: high risk lending, regulatory failures, inflated credit ratings, economic adversity, affordability and land-use regulations, predatory lenders, predatory borrowers, and overcommitted borrowers. See e.g., Permanent Subcomm. on Investigations Report, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, Majority and Minority Staff Report (April 13, 2011); Ronald D. Utt, The Subprime Mortgage Market Collapse: A Primer on the Causes and Possible Solutions, The Heritage Foundation (Apr. 22, 2008) http://www.heritage.org/research/reports/2008/04/the-subprime-mortgage-market-collapse-a-primer-on-the-causesand-possible-solutions; Fernando Ferreira and Joseph Gyourko, A New Look at the U.S. Foreclosure Crisis, Nat’l Bureau of Econ. Research (June 2015).
82 Lawsuit Hearing at 29 (opening statement of Prof. Jonathan Turley).
83 H. Comm. on Oversight and Gov’t Reform Report, The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008, at 3 (July 1, 2009, updated May 12, 2010) https://oversight.house.gov/report/the-role-of-government-affordable-housing-policy-in-creating-the-globalfinancial-crisis-of-2008/.
84 Lawsuit Hearing at 32 (opening statement of Prof. Jonathan Turley).
85 Id.
