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Citi Homeowners Lose Mortgage Modification Appeal Suit

courtroom-scalesCitigroup Inc., recently received a victory in an appeals court for a case involving homeowners allegedly not receiving the agreed-upon terms for their mortgage modifications.

In a memorandum from the U.S Court of Appeals for the Ninth Circuit, the judges declined to certify the claims made by thousands of homeowners who argued that Citigroup broke their loan modification agreements.

The plaintiffs alleged that Citi did not honor agreements to lower homeowners’ monthly mortgage payments under U.S. Treasury’s Home Affordable Modification Program. Homeowners say that Citi broke promises to make their loan modifications permanent if they made reduced payments on time during a roughly three-month trial period, accusing Citi of breach of contract and breach of good faith and fair dealing.

The court found that individual issues predominated over an allegedly common question regarding the deadline for the lender to approve revisions, the memo said.

This new decision said that the homeoweners' claims were too individualized since the agreed-upon deadline might have been affected by the "parties’ course of conduct, changes in income, inaccurately or incompletely reported income, oral and written representations regarding documentation still needed and other modification options, applicable Treasury Directives, and other considerations."

"The district court’s analysis focused on the relationship between the common and individual issues in the case. In doing so, the district court determined that individual issues predominated over common issues, because determination of the deadline by which Citi was allegedly required to grant or deny permanent modification could not be made “simply by identifying the MED [Modification Effective Date] as stated in the TPP [Trial Payment Plan Agreement]," the memorandum stated.

Citigroup did not immediately respond to a request for comment at the time of publication of this article.

In October 2013, U.S. District Judge Dale S. Fischer of Los Angeles federal court found that the plaintiffs' claims suffered from “heterogeneity problems” that were just too individualized to settle in the manner.

“Plaintiffs have failed to propose a method of measurement that can be applied classwide and ties breach of contract and other legal theories to liability and a reliable measure of damages,” Judge Fischer said.

The district court ultimately determined  that individual issues predominated over common issues, noting that “it is clear that an evaluation of the merits of the proposed class claim would require significant individualized inquiry,” the memorandum said.

Citigroup reported net earnings of $3.3 billion for the fourth quarter of 2015, nearly a ten-fold increase from the bank’s reported net income of $344 million for the fourth quarter of 2014. The spike was driven by "higher revenues and lower operating expenses, partially offset by a higher cost of credit. Citigroup’s effective tax rate was 29 percent in the current quarter, a decrease from 74 percent in the fourth quarter 2014, which was impacted by an elevated level of non-tax-deductible legal and related expenses," according to the release. Citigroup's revenues increased year-over-year in Q4 2015 by 4 percent up to $18.6 billion.

For the full year of 2015, Citigroup’s net income more than doubled despite a slight decline in revenues, from $7.3 billion on revenues of $77.2 billion in 2014 up to $17.1 billion on revenues of $76.4 billion in 2015. The $17.1 billion net income for the full year of 2015 was the Citigroup’s best yearly net income in nine years. The price per diluted share shot up year-over-year from $0.06 to $1.02. The increase was driven by “lower operating expenses and lower net credit losses (that) were partially offset by the lower revenues and a lower net loan loss reserve release,” according to Citigroup.

“Overall, we had strong performance during 2015,” said Michael Corbat, CEO of Citigroup. “The $17.1 billion we generated in net income was the highest since 2006, when our company was very different in terms of headcount, footprint, mix of businesses and assets. Over the last three years, we have made substantial progress toward our targets and execution priorities. We significantly improved our returns on both assets and tangible common equity, as well as our Citicorp efficiency ratio. We have sharpened our focus on target clients, shedding over 20 consumer and institutional businesses in the process.”

Click here to view the memorandum.

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