Deutsche Bank agreed on Friday to pay about $1.9 billion to settle claims that it misled Fannie Mae and Freddie Mac over the quality of home loans bundled into mortgage-backed securities, becoming the latest big bank to reach a settlement with federal housing regulators.
The bank, based in Germany, is the sixth entity to reach a settlement with the Federal Housing Finance Agency, which has sued 17 banks and financial institutions in September 2011. The agency says the institutions misled Fannie and Freddie before the financial crisis over the creditworthiness of borrowers and the quality of the loans that were packaged into securities.
Deutsche Bank said in a news release that it had largely set aside money in its legal reserves to pay for the settlement, which it said “resolves its single largest mortgage-related litigation issue.†About $1.6 billion of the settlement will go to Freddie Mac and $300 million will go to Fannie Mae.
The pace of settlements between the Federal Housing Finance Agency and the banks it sued has picked up in the last few months as Wall Street institutions look to put litigation arising from the financial crisis and the collapse of the American housing market behind them.
The dollars collected by the agency, which is the conservator for Fannie and Freddie, are quickly rising. The agency has collecting more than $5 billion from JPMorgan Chase and $885 million from UBS. Several other banks are in negotiations to settle their cases.
In its lawsuits, the regulator said that some of the losses Fannie and Freddie incurred on mortgage-backed securities stemmed from financial institution selling securities that were flawed because many of the home loans in those bonds were riskier than the banks had represented. The agency has sued Deutsche, JPMorgan, Citigroup, Bank of America and other institutions seeking to recoup some of $196 billion that Fannie and Freddie had spent buying up the so-called private-label mortgage-backed securities.
The regulator said in a statement that it was “committed to satisfactory resolution of the remaining actions†it has filed. In addition, to Deutsche Bank, JPMorgan and UBS, the agency has reached settlements with Citigroup and General Electric‘s financing arm.
Of the banks that have yet to settle, Bank of America faces the greatest potential exposure. That bank, along with firms that it acquired like Countrywide Financial, were responsible for selling more faulty mortgage securities to Fannie and Freddie than other institutions, according to the regulator.
A Bank of America spokesman declined to comment on the litigation.
