Deutsche Bank Settles with Fannie and Freddie for $1.9 Billion

NEW YORK ( TheStreet) -- Deutsche Bank ( DB) on Friday announced an agreement with the Federal Housing Finance Agency (FHFA) to resolve all claims against the bank for all sales of residential mortgage-backed securities to Fannie Mae ( FNMA) and Freddie Mac ( FMCC) between 2005 and 2007.

Deutsche Bank agreed to pay $297 million to Fannie Mae and $1.628 billion to Freddie Mac, for a total settlement tab of $1.925 billion.

Fannie and Freddie -- together known as the government sponsored enterprises, or GSEs -- were taken under government conservatorship at the height of the credit crisis in September 2008.  The U.S. Treasury holds $117.1 billion in senior preferred Fannie Mae shares and $72.3 billion in senior preferred Freddie Mac shares. Under their modified bailout agreements, the GSEs must pay all earnings to the government in excess of minimal capital cushions of $3 billion apiece. Including their December dividend payments, the government has received $185.3 billion in dividends from Fannie and Freddie, for a five-year investment of $189.4 billion.

But there's no mechanism in place for either GSE to repurchase any government-held preferred shares.  Several institutional investors holding junior preferred and/or common shares of Fannie and Freddie have sued the government over what they say has been an illegal seizure of their property. 

Consumer advocate Ralph Nader is firmly on the side of the GSEs non-government shareholders

The FHFA sued 17 banks in September 2011 seeking to recover billions of dollars on behalf of the GSEs for alleged misrepresentation by the banks of the quality of loans underlying private label mortgage-backed securities the banks had sold to Fannie and Freddie during the U.S. housing credit bubble before 2008.

Big banks agreeing to major settlements with the FHFA this year have included JPMorgan Chase ( JPM), which agreed in October to fork over $5.1 billion to the GSEs, and Bank of America ( BAC), which agreed in January to a $10.3 billion mortgage settlement with Fannie Mae.

Shares of Deutcshe Bank were up 1.4% in morning trading to $46.57, while Fannie Mae was up 1.9% to $3.20 and Freddie Mac was up 2.7% to $3.05.

Stocks were strong Friday Morning after the Bureau of Economic Analysis once again raised its estimate for third-quarter U.S. gross domestic product growth, to an annual rate of 4.1%, from its previous estimate of 3.6%.

-- Written by Philip van Doorn in Jupiter, Fla.



>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

If you liked this article you might like

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

House Financial Services Chairman Jeb Hensarling Won't Seek Reelection

House Financial Services Chairman Jeb Hensarling Won't Seek Reelection

Mortgage Payments Could Be Hurt by Harvey's Impact on Houston

Mortgage Payments Could Be Hurt by Harvey's Impact on Houston

Fannie Mae: 36,583 Homes it Covers are in Harvey's Path

Fannie Mae: 36,583 Homes it Covers are in Harvey's Path

Fannie Mae and Freddie Mac Would Be Privatized Under Proposed House Budget

Fannie Mae and Freddie Mac Would Be Privatized Under Proposed House Budget