A huge settlement reached between Citigroup Inc. and the Federal National Mortgage Association will relieve the lender of repurchase liability on millions of home loans.
The agreement with Fannie Mae was separately announced Monday by both the New York-based financial services giant and the secondary lender.
Citi said that the settlement resolves potential future repurchase claims for breaches of representations and warranties on 3.7 million residential first mortgages acquired by Fannie between 2000 and 2012.
Citi will pay $968 million under the agreement — though most of the costs will be charged to Citi’s existing mortgage repurchase reserves as of March 31.
However, liability on some loans sold to Fannie during the period will remain. Those loans, which number fewer than 12,000, were originated during the covered period and had characteristics like being sold with a performance guaranty or being sold under special credit enhancement programs.
“Citi currently believes it is adequately reserved for the loans not covered by the agreement,” the statement said. “Citi has and will continue to work with Fannie Mae on the timely repurchase of any mortgage loans sold to Fannie Mae that do not meet Fannie Mae’s requirements.”
Citi said it expects to record a residential mortgage repurchase reserve build of $245 million in the second quarter, which is in line with recent quarters.
Citi will release its second-quarter results on July 15.
In addition, Citi will still maintain liability with respect to the servicing or other ongoing contractual obligations on the covered loans.
“We have a strong and productive relationship with Fannie Mae,” CitiMortgage Inc. Chief Executive Officer Jane Fraser said in a statement.
A statement from Fannie Mae Executive Vice President and General Counsel Bradley Lerman echoed Citi’s sentiment.
“This resolution is an example of our desire to work together with our business partners to find common ground,” Lerman said. “Today’s agreement resolves legacy repurchase issues, compensates taxpayers for losses, and allows Fannie Mae and Citi to move forward and strengthen our business relationship.”
Lerman added that Fannie will continue to focus on making progress in resolving repurchase requests with other lenders.
