US banking giant Citigroup Wednesday announced an agreement to pay Freddie Mac $395 million to settle claims of potential flaws in millions of mortgages it sold Freddie.
Wednesday’s settlement covers potential future claims on 3.7 million loans sold to the quasi-public Freddie between 2000 and 2012, a period that includes the housing boom. Freddie has contended that Citi and other banks sold it loans that did not meet key standards.
Citi said it would finance the payment with its existing mortgage repurchase reserves.
Banks must make representations to Freddie about the loans before they are sold. If the claims are faulty, the bank can be forced to repurchase the loans.
Wednesday’s settlement ends the back-and-forth between Freddie and Citi on the loans at issue.
In May, Citi reached a settlement with the US Federal Housing Finance Agency over charges Citi violated federal securities laws in the sale of residential mortgage-backed securities to Fannie Mae and Freddie Mac. The FHFA is the conservator for the two mortgage-finance giants.
Terms of the Citi-FHFA settlement were not disclosed.
Wednesday’s agreement marks Citi’s latest effort to move past a trove of litigation and other problems after the housing bust. Citi and other leading banks have faced a huge number of claims related to problematic loans that were granted.
“Today’s agreement with Freddie Mac marks another important milestone in successfully resolving Citi’s legacy mortgage issues,” said Jane Fraser, chief executive of CitiMortgage.
A Freddie Mac spokesman also praised the deal.
“We believe the agreement is an equitable one that resolves legacy repurchase issues and allow both companies to move forward,” Freddie Mac spokesman Tom Fitzgerald said.
In July, Citi announced a similar settlement with Fannie Mae for $968 million.
[Image via Agence France-Presse]