Citigroup and JPMorgan Chase appeared to score a significant victory Tuesday after the Department of Housing and Urban Development suggested it won't punish lenders for major crimes committed by their corporate parents.
The announcement concerns a requirement that lenders in HUD's mortgage insurance program certify they haven't been convicted of violating federal antitrust laws or other serious crimes. Citi and JPMorgan in May pleaded guilty to felony charges that they broke federal antitrust laws for their traders’ participation in a yearslong scheme to manipulate currency markets for profit. Both companies own banks that make mortgages that are later insured by the HUD-overseen Federal Housing Administration.
But on Tuesday, Secretary Julián Castro's housing agency proposed modifying the required certification in a way that would apply only to HUD-registered lenders. The lenders' parent companies wouldn't be on the hook, thus seemingly enabling Citi and JPMorgan's HUD-registered units to continue certifying that they haven't pleaded guilty to federal antitrust charges.
Castro's agency in May had initially proposed deleting the requirement altogether. The agency slightly retreated following criticism from three powerful Democratic lawmakers: Rep. Maxine Waters of California and Sen. Sherrod Brown of Ohio and Sen. Elizabeth Warren of Massachusetts, who had argued that the housing agency was trying to "make it easier for lenders who have engaged in illegal behavior" to continue participating in the federal mortgage insurance program.
Still, as a result of Tuesday's announcement, JPMorgan's and Citi's guilty pleas are likely to have little, if any, effect on their federal mortgage business.
The move comes as the Obama administration struggles to convince the public that it is tough on big banks that violate the law. Federal authorities have “done little to dispel the sentiment that no one will ever be brought to justice,” the Democratic staff of the House Financial Services Committee said in a July report.
The issue could later haunt Castro, who has been mentioned as a leading candidate to become Democratic presidential hopeful Hillary Clinton's running mate for the 2016 election.
The housing agency rejected the allegation that its proposal amounted to a weakening of its enforcement powers.
"Holding lenders accountable is a central pillar of this administration's work and we will not back away from these efforts," FHA chief Edward Golding said during a conference call with the news media.
Mark Rodgers of Citi and Amy Bonitatibus of JPMorgan didn't respond to requests for comment.
Cameron French, a HUD spokesman, said in an email that the housing agency has "broad authority to sanction or remove lenders from the program when they place the FHA program at risk; the proposed changes to the certification do not change that."
Federal housing officials had previously said the current required certification was so broad that it could ensnare lenders charged with non-mortgage-related crimes -- such as JPMorgan and Citi -- thus hurting the agency's efforts to jump-start mortgage lending, congressional aides said.
The housing agency insures loans so that lenders will give mortgages to borrowers with spotty credit or those who are unable to amass sizable down payments. These borrowers have largely been shut out of the mortgage market in the wake of the housing bust.
The housing agency will accept public comments on the proposal in the coming months. It hopes to finalize the proposal by early next year.