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U.S. Bancorp (USB - Analyst Report) announced a lawsuit settlement with Freddie Mac (FMCC) worth about $53 million. The settlement includes the resolution of all outstanding and potential repurchase claims related to misrepresentation of loans originated and sold by U.S. Bancorp directly to Freddie Mac from 2000 to 2008.

The Minneapolis-based banking major will shell out the total amount in cash to Freddie Mac, including adjustments related to credits, along with previous buybacks. The settlement amount will be paid from U.S. Bancorp’s current reserves.

Freddie Mac, along with Fannie Mae (FNMA) can compel banks to buy back mortgages that do not abide by the prescribed guidelines. Notably, since 2009, both these government-sponsored enterprises (GSEs) compelled many lenders to repurchase bad loans worth billions of dollars. Additionally, the Federal Housing Finance Agency (FHFA) – the conservator for these two firms – has set a goal to complete review of all loan files for breaches of representations and warranties related to loan activity prior to 2008.

U.S. Bancorp is not the first bank to reach a settlement with these regulatory agencies. In Jan 2011, Bank of America Corporation (BAC - Analyst Report) signed a $3 billion agreement with Freddie Mac and Fannie Mae to resolve faulty mortgage loans sold by Countrywide Financial Corp. BofA had acquired Countrywide in 2008.

Moreover, earlier this year, BofA agreed to settle its mortgage dispute with Fannie Mae. The company paid $11.6 billion in total, which included $6.7 billion of loan repurchases.

Over the last several months, Freddie Mac reached settlements with Wells Fargo & Company, Citigroup Inc., JPMorgan Chase & Co., The PNC Financial Services Group, Inc., Fifth Third Bancorp and SunTrust Banks, Inc. The compensation from these companies totaled approximately $2.5 billion.

These settlements by banks demonstrate their aim to resolve all mortgage-related issues and thereby reduce costs over the coming period. Moreover, such settlements are expected to help in revival of the economy. Alongside, these strategic decisions will likely bode well for banks and help in boosting investors’ confidence.

U.S. Bancorp currently carries a Zacks Rank #3 (Hold).

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