By E. Scott Reckard and Jim Puzzanghera
July 14, 2014

With Citigroup Inc. agreeing to pay $7 billion for issuing toxic mortgage securities, the Justice Department now turns to settling its case against what analysts call the biggest mortgage miscreant of all: Bank of America Corp.

The government has contended that the Charlotte, N.C., lender bears responsibility not only for its own mortgage bonds, but also for those at two firms it took over during the financial crisis: Countrywide Financial Corp. in Calabasas and Merrill Lynch & Co. in New York.

Analysts said BofA will feel the heat of investigations stemming from the subprime housing boom. Countrywide was once the biggest originator of high-risk home loans, and Merrill was one of Wall Street’s largest producers of bonds back by subprime mortgages.

U.S. Atty. Gen. Eric Holder acknowledged as much Monday during a news conference to announce that Citigroup Inc. would pay a record $4-billion civil fine, $500 million in repayments for losses and $2.5 billion in consumer relief.

“Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last,” Holder said.

In the Citi deal, California will be among several states that will share in the settlement. Citi will pay California $102.7 million to offset losses at its public pension funds, primarily the California Public Employees’ Retirement System, according to Atty. Gen. Kamala D. Harris’ office.

California also is guaranteed at least $90 million in consumer relief, the most of any state.

The agreement is the latest in the federal government’s efforts to hold accountable those financial institutions that made high-risk loans during the housing boom and packaged them to create bonds they sold to investors around the world.

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