Citigroup Inc. (NYSE:C) has reached an agreement to pay $968 million to Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) to resolve potential claims over residential first-mortgage claims.

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The End For Hangovers From Financial Crisis

The deal marks the end of one of the hangovers from the financial crisis for Citigroup Inc. (NYSE:C). The banking group agreed to pay $968 million to settle potential claims that it breached guarantees of loan quality on 3.7 million mortgages that were sold to the mortgage finance agency Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), between 2000 and 2012.

However, a group of loans with special characteristics and numbering less than 12,000 were not included in the agreement. Citigroup will continue to service the mortgage loans covered under the deal.

Citigroup Inc. (NYSE:C), like several other banks, sold off millions of mortgage loans to the government, which re-packaged them as mortgage-backed securities. When several borrowers started defaulting on their loan obligations, the move has resulted in considerable loss to the mortgage finance agency.

Banks have been spending the past few years trying to negotiate the amount of compensation for mortgages they underwrote for loans of defaulted borrowers.

Citigroup Settlement Doesn’t Cover Freddie Mac

Citigroup Inc. (NYSE:C)’s settlement however, doesn’t cover warranty claims from Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), the other big mortgage finance company. However, Citigroup’s settlement with Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) dwarfs in comparison to $3.6 billion cash payment and $6.75 billion repurchase of mortgages agreed by Bank of America Corp (NYSE:BAC) with Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA).

In January, Bank of America Corp (NYSE:BAC) took a huge step when it declared the settlement with Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) regarding ongoing repurchase claims for fraudulent mortgages sold by its Countrywide financial subsidiary through December 31, 2008. This move will particularly help the bank to reduce its legal liability, removing a large amount of drag in its stock prices.

Citigroup Inc. (NYSE:C)’s head of mortgage division Jane Fraser indicated the bank has a strong and productive relationship with Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and the agreement substantially resolves all potential future repurchase claims from them for loans originated from 2000 to 2012.

Citigroup said most of the settlement amount was covered by the bank’s existing mortgage repurchase reserves. As part of its quarterly plan, it will add $245 million in the second quarter to its reserve.

Citigroup Inc. (NYSE:C) is set to report its quarterly results on July 15.