NEW YORK — Citigroup has agreed to pay $968 million to Fannie Mae to resolve potential future repurchase claims on residential mortgage loans originated between 2000 and 2012.
A sizable group of the loans were originated during the U.S. housing boom. Mortgage giants Fannie Mae and Freddie Mac bought mortgage loans from banks like Citigroup in the run-up to the financial crisis. Fannie and Freddie teetered as the loans went bad, and they were effectively nationalized in 2008. The government has spent billions to keep Fannie and Freddie afloat.
Fannie and Freddie have since said that the banks misled them by not telling them the true condition of the mortgages they were buying. For several years, they have been demanding that the banks repurchase the mortgages.
The agreement between Citigroup and Fannie Mae covers claims for breaches of representations and warranties on 3.7 million loans. The deal doesn't release Citigroup's liability for servicing and other ongoing contractual obligations for the loans.
Citigroup said that it is also still liable for a group of less than 12,000 loans originated between 2000 and 2012, including loans sold with a performance guaranty or under special credit enhancement programs.
The bank anticipates a $245 million residential mortgage reserve for its second quarter, consistent with reserves from recent quarters. Citigroup will report its quarterly results on July 15.
The New York company said it has adequate reserves for loans not covered by the agreement.
Citigroup Inc. said Monday that it will continue to work with Fannie Mae on buying back any mortgage loans sold to the government-controlled mortgage agency that don't meet its requirements.
Fannie Mae Executive Vice President and General Counsel Bradley Lerman said in a statement that the agency continues to work on resolving repurchase requests with other lenders.
Citigroup's stock added $1.05, or 2.2 percent, to $49.02 in morning trading. The shares have traded in a 52-week range of $24.91 to $53.56.
In January, Bank of America reached an $11.6 billion settlement with Fannie Mae to settle claims resulting from mortgage-backed investments that soured during the housing crash.
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Sanford "Sandy" Weill
The former <a href="http://www.huffingtonpost.com/2012/07/25/sandy-weill-cnbc-break-up-big-banks_n_1701274.html">Citigroup Chairman and CEO told CNBC in 2012 that</a> "we should probably... split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, and have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail."
Retired Citigroup chairman <a href="http://www.nytimes.com/2009/10/23/opinion/l23volcker.html?_r=0">John S. Reed wrote to the New York Times in 2009</a>: "Some kind of separation between institutions that deal primarily in the capital markets and those involved in more traditional deposit-taking and working-capital finance makes sense."
Phil Purcell, former chairman and CEO of Morgan Stanley, <a href="http://online.wsj.com/article/SB10001424052702304765304577480743265772620.html" target="_hplink">argued in a Wall Street Journal op-ed</a> that the big banks should break their divisions up into separate firms. "These businesses should be spun off to give the value to shareholders and let investment banks be owned privately -- hopefully largely by employees... so that the interests of the owners and bankers are aligned," he wrote.
Former Merill Lynch CEO, David Komansky, is another former megabank CEO calling for the breakup of "too big to fail" banks, <a href="http://economix.blogs.nytimes.com/2012/08/02/under-pressure-megabanks-rely-on-three-myths/" target="_hplink">according to Simon Johnson.</a> Komansky told Bloomberg TV that he <a href="http://www.bloomberg.com/video/59862858-komansky-says-he-regrets-role-in-glass-steagall-repeal.html" target="_hplink">"regrets" calling for the repeal of Glass-Steagall,</a> which allowed banks to become bigger than ever.
Former Citigroup CFO Sallie Krawcheck has argued that big banks are simply <a href="http://www.huffingtonpost.com/2012/06/12/sallie-krawcheck-jpmorgan-chase-loss_n_1588989.html" target="_hplink"> too complex to manage.
After announcing the end of his 16-year tenure on the board of <a href="http://www.bloomberg.com/news/2012-04-19/parsons-blames-glass-steagall-repeal-for-crisis.html">Citigroup, Richard Parsons told Bloomberg</a>, "to some extent what we saw in the 2007, 2008 crash was the result of the throwing off of Glass-Steagall. Have we gotten our arms around it yet? I don't think so because the financial-services sector moves so fast."
Scott Shay, the founder and chairman of Signature Bank, wrote in American Banker that <a href="http://www.americanbanker.com/bankthink/the-absurdity-of-too-big-to-fail-banking-1052812-1.html?zkPrintable=1&nopagination=1">"reinstating Glass Steagall should be the highest priority"</a> for financial regulators.