NEW YORK — Deutsche Bank agreed Friday to pay about $1.9 billion to settle claims that it had misled Fannie Mae and Freddie Mac over the quality of home loans bundled into mortgage-backed securities, becoming the latest big bank to reach a settlement with federal housing regulators.
The bank, based in Germany, is the sixth entity to reach a settlement with the Federal Housing Finance Agency, which had sued 18 banks and financial institutions in September 2011. The agency says the institutions misled Fannie and Freddie before the financial crisis over the creditworthiness of borrowers and the quality of the loans that were packaged into securities. The agency is seeking to recoup some of $196 billion that Fannie and Freddie had spent buying up the private-label mortgage-backed securities.
Deutsche Bank said in a news release that it had largely set aside money in its legal reserves to pay for the settlement, which it said "resolves its single largest mortgage-related litigation issue." About $1.6 billion of the settlement will go to Freddie Mac, and $300 million will go to Fannie Mae.
The pace of settlements between the Federal Housing Finance Agency and the banks it sued has picked up in the past few months as Wall Street institutions look to put litigation arising from the financial crisis and the collapse of the US housing market behind them.
The dollars collected by the agency, which is the conservator for Fannie and Freddie, are quickly rising. The agency has collecting more than $5 billion from JPMorgan Chase and $885 million from UBS. Several other banks are in negotiations to settle their cases.
In its lawsuits, the regulator said that some of the losses Fannie and Freddie incurred on mortgage-backed securities had stemmed from financial institutions selling securities that were flawed because many of the home loans in those bonds were riskier than the banks had represented. The agency has sued several large Wall Street institutions, including Deutsche, JPMorgan, Citigroup, and Bank of America.
JPMorgan's settlement was part of the bank's broader $13 billion settlement with federal authorities to resolve several investigations into its mortgage practices, including those of firms the bank acquired. The regulator said in a statement that it was "committed to satisfactory resolution of the remaining actions" it has filed. In addition to Deutsche Bank, JPMorgan, and UBS, the agency has reached undisclosed settlement terms with Citigroup, GE's financing arm, and Ally Financial.
The settlement between Deutsche and the agency was agreed to several days after a federal judge issued a ruling that limited the ability of Deutsche and the other banks that have not settled to raise certain defenses.
Of the banks that have yet to settle, Bank of America faces the greatest potential exposure. The agency filed not only a lawsuit against the bank, but also separate suits against Merrill Lynch and Countrywide Financial, two institutions it acquired. Bank of America and the firms it acquired were responsible for selling more faulty mortgage securities to Fannie and Freddie than other institutions, according to the regulator.
A Bank of America spokesman declined to comment on the litigation.