Recently, Citigroup Inc. (C) announced the settlement of a lawsuit filed by Federal Housing Finance Agency (FHFA) accusing the banking major of misrepresenting mortgage-backed securities. FHFA’s claim was that Citigroup had duped Federal National Mortgage Association (FNMA), also known as Fannie Mae, and Federal Home Loan Mortgage Corporation (FMCC), popularly known as Freddie Mac, into buying mortgage-backed securities worth $3.5 billion. FHFA was appointed as conservator of the mortgage investors in 2008.
The settlement comes after a federal judge in N.Y. quashed the plea by UBS AG regarding the dismissal of claims for a lawsuit charged against it as well as other major financial institutions in April..
The settlement was declared in a filing in U.S. District Court in Manhattan. This is the second among a total of 18 lawsuits filed by the federal agency against banks in 2011. FHFA had accused the banks of selling faulty securities worth $200 billion to Fannie Mae and Freddie Mac through misleading statements, which violated the securities laws.
Citigroup became the second bank after Bank of America Corp (BAC), which announced a settlement with Fannie Mae worth about $10.3 billion in Jan 2013. It included the resolving of all outstanding and potential repurchase, along with other claims relating to all major residential mortgage loans originated and sold directly to Fannie Mae by BofA from Jan 1, 2000 through Dec 31, 2008.
The lawsuit settlement by Citigroup exemplifies its aim to resolve all mortgage related issues, and thereby reduce costs over the upcoming period. Moreover, such agreements promise to further revive the economy, and bode well for Citigroup.
Citigroup currently carries a Zacks Rank #3 (Hold).
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