Citi's Fannie Mae settlement could lend originators leverage

by Diana Aqra02 Jul 2013
Yesterday's announcement that Citigroup will settle with Fannie Mae for US $968m over mortgage buy-backs should give originators more leverage to dispute Citi’s requests, according to an industry attorney.
 
Citigroup announced yesterday that it would pay Fannie Mae $968m to settle claims on 3.7m loans which have gone bad, and attorney Robert Siegel has said the figures on settlements such as this can give originators a starting point for negotiations on repurchase obligations to the bank.
 
Siegel, an attorney for for Bilzin Sumberg Baena Price & Axelrod LLP in Miami, Florida,He has focused some of his practice on originators’ burdens of buy-backs. He said originators are more frequently contesting buy-backs, arguing that big banks' claims are groundless.
 
Siegel argued that buy-back requests are often based on criteria that have nothing to do with why the borrower defaulted. In many ways, the rise in mortgage defaults during the housing crisis was a result of banks’ desire to aggregate as many loans as they could.
 
Siegel said that buy-back settlements and negotiations are based on the ongoing relationship between an originator and an aggregator or investor. Citi wants to keep its relationship with Fannie, Siegel said, and hence decided to settle. Similarly, if an originator wishes to keep his relationship with an investor, he will settle as well, Siegel contended.
 
Citigroup declined to comment.

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