New York, NY, United States (4E) – Citigroup Inc. announced that it is paying $395mn to Freddie Mac to cover potential mortgage-related claims in the future.
The deal is meant to resolve potential future buyback claims for origination-tied representation and warranty claims on 3.7 million loans that Freddie Mac purchased from 2000 to 2012, according to Citi. The payment will come from the lender’s existing mortgage repurchase reserves by the end of the second quarter. The third-largest U.S. bank also said its reserves are sufficient to even cover loans not included in the deal.
The country’s largest mortgage lenders, including Citi and Bank of America Corp., are seeking to end issues linked to claims on mortgages sold to Freddie Mac and Fannie Mae, the government-owned firms that received a $187.5bn bailout. In July, Citigroup said it struck a deal to pay Fannie Mae $968mn.
The mortgages that are at issue are mostly those that originated before the housing meltdown that Freddie, Fannie and private investors have said that Citi had not underwritten prudently as their agreements with the mortgage buyers required.
In September 2008, the federal government took over control Fannie and Freddie to avert a collapse of the firms after massive mortgage losses. They have since stayed afloat with the help of taxpayer funds, though they have recently avoided asking financial support due to improving conditions in the housing market.