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 had sued 18 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. It is seeking to recoup some of $196 billion that Fannie and Freddie had spent buying up the so-called private-label mortgage-backed 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.
Document: News release from Deutsche BankThe 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 agency has collected more than $5 billion from JPMorgan Chase and $885 million from UBS. In addition, the agency has also reached undisclosed settlement terms with Citigroup, G.E.’s financing arm and Ally Financial.
In its lawsuits, the regulator said that some of the losses Fannie and Freddie incurred on mortgage-backed securities stemmed from financial institutions selling securities that were flawed because many of the home loans in those bonds were riskier than the banks had represented.
JPMorgan’s payment was negotiated as part of the bank’s broader $13 billion settlement with federal authorities to resolve several investigations into its mortgage practices, including those of firms the bank acquired.
The regulator said in a statement that it was “committed to satisfactory resolution of the remaining actions” it has filed. The settlement between Deutsche and the agency was agreed to several days after a federal judge issued a ruling that limited the ability of Deutsche and the other banks that have not settled to raise certain defenses.
Of the banks that have yet to settle, Bank of America and the firms it acquired were responsible for selling more faulty mortgage securities to Fannie and Freddie than other institutions, according to the housing finance agency. The agency not only filed a lawsuit against the bank but also filed separate suits against Merrill Lynch and Countrywide Financial, two institutions it acquired after the financial crisis.
A Bank of America spokesman declined to comment on the litigation.