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Citigroup To Pay $968 Million To Fannie Mae In Mortgage Settlement - ...

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Citi To Pay $968 Million Over Faultly Home Loans


By Bloomberg News Posted 07/01/2013 02:15 PM ET

Citigroup (C), the third-largest U.S. bank by assets, will pay Fannie Mae $968 million to compensate the taxpayer-backed mortgage buyer for more than a decade of claims tied to faulty home loans. The agreement includes 3.7 million mortgages originated from 2000 to 2012 and sold to Fannie Mae, Citigroup said today in a statement. While payments are covered by existing reserves, the company set aside an additional $245 million in the second quarter. Other banks, like Bank of America (BAC), have been pressed to buy back flawed mortgages as Fannie Mae and Freddie Mac seek cash to repay the $187.5 billion bailout they received after the 2008 financial crisis. The two U.S.-owned firms rank among the biggest buyers of home loans, and banks typically promise refunds if the mortgages lack
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accurate data about borrowers and properties.

The accord resolves "substantially all potential future repurchase claims" with Fannie Mae, Jane Fraser, head of the lender's mortgage unit, said in the statement. The bank will focus on producing "high-quality mortgage loans," said Fraser, named by Chief Executive Officer Michael Corbat to run the operation in May. Citigroup shares were up 1.7% in afternoon trading on the stock market today. "The settlement is definitely a positive step" for banks facing such claims, said Kevin Barker, an analyst for Compass Point Research & Trading. Lenders need to bring down costs, and the more these claims are put to rest, "the less overhang there'll be on the stocks," he said. The deal doesn't release Citigroup from liability tied to servicing the loans. The agreement also excludes a group of fewer than 12,000 loans made from 2000 to 2012, the bank said. These loans were sold with "certain characteristics" such as performance guarantees or under special credit enhancement programs, the company said. Citigroup had set aside $1.42 billion at the end of March to cover demands to buy back bad mortgages, according to an April 15 presentation. The bank didn't say how much of those were tied to Fannie Mae. Litigation and repurchases tied to defective mortgages have cost Citigroup more than $4 billion since 2007, according to data compiled by Bloomberg. Bank of America, ranked second by assets, agreed to an $11.7 billion settlement with Fannie Mae in January. Corbat, who replaced Vikram Pandit as CEO in October, is grappling with the costs of the bank's soured mortgage investments. The lender has sold about $10.6 billion of overdue residential first mortgages since the beginning of 2010 and has about $90 billion of home loans tagged for sale in the Citi Holdings division, according to a regulatory filing. Regulators seized Fannie Mae and Freddie Mac known as government-sponsored enterprises, or GSEs in 2008 after their purchases of risky loans pushed them to the brink of collapse. The GSEs bought about $2.2 trillion of mortgages from the 15 biggest banks and Ally Financial, according to Inside Mortgage Finance, a trade journal.
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7/2/2013 5:27 PM