The accord covers about 3.7 million loans sold to Freddie Mac between 2000 and 2012, the New York-based company said yesterday in a statement. The payment was covered by repurchase reserves as of June 30, Citigroup said.
The biggest U.S. home lenders, including Bank of America Corp. and Citigroup, faced mounting pressure after the housing crisis to resolve claims on faulty mortgages sold to Fannie Mae and Freddie Mac, the U.S.-owned firms that took a $187.5 billion bailout. Citigroup announced a deal in July to pay Fannie Mae $968 million for loans over a similar period.
The deal with Freddie Mac is “another important milestone in successfully resolving Citi’s remaining legacy mortgage issues,” Jane Fraser, chief executive officer of the firm’s CitiMortgage unit, said in the statement.
The accord doesn’t release the bank from liability tied to servicing the loans. It excludes less than 1,000 loans from the period with “certain characteristics,” including those already in the process of being repurchased. Citigroup said it believes it’s also adequately reserved for those.
The company had $719 million in reserves for buying back faulty mortgages at the end of the June, according to a July 15 presentation. The bank added $3.9 billion to its reserves since 2009 through June, according to data compiled by Bloomberg.
Freddie Mac and Fannie Mae, its larger rival, bought about $2.2 trillion of mortgages from the 15 biggest banks and Ally Financial Inc. (ALLY) between 2006 and 2009, according to Inside Mortgage Finance, a trade journal. Regulators seized the two firms in 2008 after their purchases of risky loans pushed them to the brink of collapse.
Citigroup sold $62.4 billion of mortgages to Freddie Mac between 2005 and 2009, according to data from Washington-based Compass Point Research & Trading LLC. The bank’s CEO, Michael Corbat, 53, named Fraser in May to run the mortgage operation. She has sought to reduce staff and move beyond legacy issues.
Citigroup said earlier this week it’s cutting about 1,000 jobs in its home-lending business as refinancings slow. The bank said earlier this month that it closed a Danville, Illinois, facility, leading to 120 job cuts, and fired some telephone sales agents. Separately, the firm is hiring employees to originate new mortgages for home purchases as opposed to refinancings, a person familiar with the moves said this week.
Citigroup created $65 billion of mortgages last year, or about 3.4 percent of the total market, according to Inside Mortgage Finance, a trade publication.