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Recently, Citigroup Inc. (C - Analyst Report) announced the settlement of a lawsuit filed by the Federal National Mortgage Association (FNMA), also known as Fannie Mae. The latter had accused the banking major of misrepresenting mortgage-backed securities (MBS). The company shelled out a sum of $968 million to Fannie Mae for the settlement.

The agreement saw to the resolution of troubled loans and future claims on mortgages made between 2000 and 2012 by Fannie Mae. The majority of the settlement amount will be paid from Citigroup’s current reserves. In the lawsuit, Fannie Mae had charged Citigroup of duping the mortgage financing company into buying risky MBS worth about $3.7 billion.

In May this year, Citigroup settled a lawsuit filed by the Federal Housing Finance Agency (FHFA), also accusing it of misrepresenting MBS. FHFA had accused Citigroup of deceiving Fannie Mae and Federal Home Loan Mortgage Corporation (FMCC), popularly known as Freddie Mac, into buying MBS worth $3.5 billion.

This was the second among a total of 18 lawsuits filed by the federal agency against banks in 2011. FHFA had imputed the banks of selling faulty securities worth $200 billion to Fannie Mae and Freddie Mac through misleading statements, which violated security laws.

Citigroup is the second bank after Bank of America Corp (BAC - Analyst Report) to arrive at a settlement. BofA announced an agreement with Fannie Mae worth about $10.3 billion in Jan 2013. It included the resolution 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 evinces its efforts to resolve all mortgage related issues, and thereby reduce costs over the upcoming period. Moreover, such agreements will likely help revive the economy, and bode well for the company.

Citigroup currently carries a Zacks Rank #3 (Hold).

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