In a day of reckoning and settling up, Citigroup agreed Monday to pay $7 billion to settle a federal probe into its handling of risky, subprime mortgages.

The settlement includes a $4 billion civil penalty to be paid to the federal government, plus another $2.5 billion in consumer relief that will help borrowers who lost their homes to foreclosure. An additional $500 million will be used to settle claims from state attorneys general and the Federal Deposit Insurance Corp.

Citigroup’s admitted pattern of deception helped fuel the nation’s largest economic meltdown since the Great Depression and “shattered lives,” according to U.S. Attorney General Eric Holder.

The settlement stems from the sale of toxic securities made up of subprime mortgages, which led to both the housing boom and the bust that triggered the Great Recession at the end of 2007. Banks, including Citigroup, minimized the risks of subprime mortgages when packaging and selling them to mutual funds, investment trusts and pensions, as well as other banks and investors.

As part of the settlement, Citigroup acknowledged it made serious misrepresentations to the public, including investors, about the mortgage loans it securitized in residential mortgage-backed securities.

California’s portion of the settlement is nearly $200 million. The state will recover $102,700,000 in damages, which will reimburse the state’s pension funds, CalPERS and CalSTRS, for losses on investments in mortgage-backed securities of Citigroup and its affiliates. The state is also guaranteed at least $90 million in consumer relief.

The relief will take the form of principal forgiveness, loan modifications, donations to housing and legal assistance nonprofits and efforts to reduce blight.

“Citigroup misled consumers and profited by providing California’s pension funds with incomplete information about mortgage investments,” state Attorney General Kamala D. Harris said in a statement. “This settlement holds Citi accountable and compensates the state’s pension funds that protect the retirement savings of hardworking Californians.”

CalPERS said Monday’s announced settlement is “a significant victory for CalPERS and for all investors who relied on statements made by Citigroup in offering documents for mortgage backed securities investments.”

“We want to thank the California attorney general’s office and the U.S. Department of Justice for their diligent efforts on behalf of our members and employers who place their trust in us to make investments for their long-term retirement security,” the agency said.

In November, Harris announced a $300 million settlement with J.P. Morgan Chase & Co. over its misrepresentations in residential mortgage-backed securities sold to CalPERS and CalSTRS.

Tom Adams, owner of Century 21 Adams & Barnes in Monrovia, said the banks might not be as much to blame as some might think.

“I hope this will put it to bed,” he said. “We need to get beyond this. I don’t know that our economy can truly recover until we get past this.”

Adams has mixed feelings about the factors that fueled the mess and said some of the blame lies with borrowers who took out mortgage loans they ultimately couldn’t afford.

“I don’t know that there was any outright fraud,” he said. “There have always been people in sales who verbally misrepresent what they are selling. Citigroup painted perhaps a rosier picture than what they should have. But there is a page that tells borrowers exactly how much their payment will be, so people have to be a little more responsible and acknowledge what they are signing up for. If you can’t make the payment … you can’t make the payment.”

Brad Levin, president of Legacy Wealth Partners in Woodland Hills, said many investments containing mortgage-backed securities never received thorough scrutiny.

“The overall problem is that these companies relied on models they created that gave the impression that these investments would perform far better than they did,” he said. “I don’t think it was an intentional misrepresentation, but people weren’t doing their due diligence, and the ratings given out by Moody’s and Standard & Poor’s weren’t properly vetted.”

Holder said Citigroup’s agreement does not preclude the possibility of criminal prosecutions for the bank or individual employees in the future.

Citigroup’s $7 billion settlement represents about half of the $13.7 billion in profits the company made last year and it falls well below the $13 billion settlement the Justice Department reached over the past year with JPMorgan Chase & Co., the nation’s largest bank.

The Justice Department also sued Bank of America for misleading investors in the sale of mortgage-backed securities.

On a macro scale, Citigroup’s settlement pales in comparison to the economic fallout that occurred as a result of the Great Recession. Millions lost their jobs and homes, causing losses that totaled trillions of dollars.

In December 2007, the nation’s unemployment rate was 5 percent and had been at or below that level for the previous 30 months. But by the end of the recession in June 2009 it had jumped to 9.5 percent and later peaked at 10 percent.

California has waged a slow but steady recovery. The state added 18,300 jobs in May of this year, which left California just 1,800 jobs shy of its pre-recession peak of 15,449,800 jobs. As of May, California has added a total of 1,327,000 jobs since the recovery began in February 2010.

The Associated Press contributed to this report.