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Citi settles Fannie and Freddie claims over mortgage bond losses

May 29, 2013|By E. Scott Reckard
  • Dennis Cook / Associated Press
Dennis Cook / Associated Press (ioo0gjkn/425/293x425 )

Citigroup Inc. has become the second financial giant to settle a regulator's lawsuits over questionable mortgage bonds sold to taxpayer-owned Fannie Mae and Freddie Mac during the housing bubble.

The agreement, disclosed Tuesday, is the second reached by the Federal Housing Finance Agency, which has 16 similar actions pending. It underscores how the fallout continues from Wall Street's boom-era love affair with such subprime lending kings as Angelo Mozilo and the late Roland Arnall.

The Federal Housing Finance Agency, Fannie and Freddie's conservator since the government took them over in 2008, did not disclose details of the settlement of its September 2011 suit seeking nearly $3.6 billion from Citi.

The lawsuit accused Citi of misleading the government-sponsored housing finance companies about the risks embedded in 10 mortgage-backed securities, including significantly overstating borrowers' abilities to repay the loans.

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Citigroup, the lead underwriter on the 10 securities, issued a statement saying, "We are pleased to put this matter behind us."

In addition to writing some of the defective loans in question, Citigroup had purchased many others from such notorious home lenders as Mozilo's Countrywide Financial Corp. of Calabasas, whose acquisition proved so disastrous for Bank of America Corp.

An even bigger source of loans was Argent Mortgage Co. of Orange, part of what once was the nation's largest subprime lending empire, the Ameriquest companies owned by Arnall, an L.A. billionaire who enjoyed entertaining California's most powerful politicians at his Holmby Hills estate.

Arnall became ambassador to the Netherlands after Ameriquest paid $325 million to settle allegations that it deceived borrowers, falsified loan documents and pressured appraisers to overstate home values.

But the Ameriquest group, which Arnall had billed as the "proud sponsor of the American dream," closed down, with Citigroup purchasing the remains in 2007 as the mortgage meltdown took hold. Arnall died of cancer the following year.

The securities also were backed by loans from numerous other lenders, including San Francisco's Wells Fargo & Co., Detroit's Quicken Loans Inc., and WMC Mortgage Corp. in Burbank.

WMC, a former subprime mortgage arm of General Electric Co., shut down as the housing market buckled and was later the target of a criminal probe by federal investigators. No criminal charges resulted.

GE settled an FHFA lawsuit over defective WMC loans in January, also on undisclosed terms.

In addition to Citigroup and GE, FHFA sued 16 other U.S. and overseas financial firms over Fannie and Freddie losses on shoddy mortgages, including Bank of America, JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley & Co.

FHFA said it "remains active in settlement discussions with other parties that were subjects of these lawsuits."

Fannie and Freddie received a combined $187.5 billion in support from the government before turning profitable again in 2012 for the first time in six years. 


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