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Deutsche Bank AG (DB - Analyst Report) became the sixth major institution to reach a settlement with the Federal Housing Finance Agency (FHFA), which had accused the bank of misrepresenting mortgage-backed securities (MBS). The Frankfurt-based bank will shell out roughly $1.9 billion for the settlement.

The FHFA had imputed Deutsche Bank of misrepresenting MBS documents to Fannie Mae (FNMA) and Freddie Mac (FMCC). The FHFA was appointed the conservator of these mortgage investors in 2008 as the downside in the housing sector put investors’ funds in jeopardy.

In 2011, FHFA sued Deutsche Bank and 17 other institutions, accusing them of selling faulty securities worth $200 billion to Fannie Mae and Freddie Mac through misleading statements that violated security laws. Deutsche Bank has been in a legal conflict with the FHFA concerning more than $14.2 billion of risky MBS sold to Freddie Mac and Fannie Mae.

Out of the total $1.9 billion settlement, Freddie Mac will receive $1.63 billion while Fannie Mae will take $300 million. The agreement, the second-largest regulatory settlement after JPMorgan Chase & Co. (JPM - Analyst Report), will be paid from the German bank’s existing legal reserves.

The settlement comes after a federal judge quashed Deutsche Bank’s appeal to dismiss a lawsuit filed against it and other major financial institutions in June. Further, in July, a federal appeal court quashed an appeal to overturn a ruling regarding how cases against the company and other major financial institutions were to proceed.

The lawsuit settlement by Deutsche Bank manifests its aim to resolve all mortgage-related issues and thereby reduce legal costs over the coming period. Further, the move is expected to provide relief to investors who were duped through such risky investments.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

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