Citigroup to pay Freddie Mac US$395m over faulty mortgages

US banking giant Citigroup has said it had agreed to pay America's Federal Home Loan Mortgage Corp - commonly known as Freddie Mac - US$395 million to settle claims of potential flaws in millions of mortgages it sold to Freddie Mac.

The settlement covers potential future claims on 3.7 million loans sold to quasi-public Freddie Mac between 2000 and last year. Freddie Mac says Citi and other banks sold it loans that did not meet key standards.

Citi said it would finance the payment with its existing mortgage repurchase reserves.

Banks must make representations to Freddie Mac about the loans before they are sold. If the claims are faulty, the bank can be forced to repurchase the loans.

In May, Citi reached a settlement with the US Federal Housing Finance Agency (FHFA) over charges Citi violated federal securities laws in the sale of residential mortgage-backed securities to the Federal National Mortgage Association - known as Fannie Mae - and Freddie Mac. The FHFA is the conservator for the two mortgage-finance giants.

Terms of the Citi-FHFA settlement were not disclosed.

Wednesday's agreement marks Citi's latest effort to move past a trove of litigation and other problems after the bursting of the US housing bubble in 2007. Citi and other leading banks have faced a huge number of claims related to problematic loans.

"[The] agreement with Freddie Mac marks another important milestone in successfully resolving Citi's legacy mortgage issues," said Jane Fraser, chief executive of CitiMortgage.

In July, Citi announced a similar settlement with Fannie Mae for US$968 million.