The bank is one of many institutions that sell home loans to the government-sponsored entity, which bundles them into mortgage-backed securities and guarantees the bonds. Following the housing crash, many of the loans that underpinned those securities faltered as millions of Americans defaulted on their mortgages.
Fannie, along with its twin Freddie Mac, was saddled with billions of dollars in losses from the loans it bought in the lead-up to the crash. The mortgage bundler began to question whether banks misrepresented the quality of their loans and pressed them to buy back mortgages that were not up to par.
The Citigroup agreement covers troubled loans and any potential future claims on mortgages made between 2000 and 2012 that were purchased by Fannie Mae. The bank said it will continue to service the mortgages included in the deal. A majority of the settlement amount is covered by Citigroup’s mortgage repurchase reserves, but the bank said it will set aside an additional $245 million.
‘‘We have a strong and productive relationship with Fannie Mae,’’ Jane Fraser, chief executive of CitiMortgage, said in a statement. ‘‘As we work to deepen and enhance financial relationships with our clients, we will continue to focus on the production of high-quality mortgage loans.’’
As of the first quarter, Citigroup had $887 million in outstanding mortgage-repurchase requests from Fannie Mae, the highest balance on the mortgage finance giant’s books, according to a public filing. The bank will probably be knocked out of the top spot by Monday’s agreement, much like Bank of America when it resolved claims with Fannie at the start of the year.
In that deal, Bank of America agreed to spend $6.7 billion to buy back about 30,000 troubled mortgages from Fannie at a discount from their original value. The bank also made $3.6 billion in cash payments to the government-owned mortgage giant.
The mortgage twins have combed through millions of loans looking for shoddy underwriting to force mortgage lenders to buy them back. The pair have focused on mortgages made between 2005 and 2008, a boom time in the housing market and an origination period that has suffered high delinquencies and defaults.
As of the end of March, Fannie said it had reviewed about 80 percent of the loans acquired during that period and expects to complete the process by the end of this year, according to a quarterly filing. It plans to issue repurchase requests to any bank that did not live up to the terms of the purchase agreement.
Since the government took control of Fannie and Freddie in 2008, the mortgage twins have been aggressively working to recoup losses, in part to hand back the $188 billion they received in US bailout funds. Last month, Fannie handed back $59.4 billion to the government.