Barclays PLC, the global financial institution announced Thursday that it has reached an agreement to settle a faulty mortgage lawsuit with the Federal Housing Finance Association (FHFA) for $280 million.
The FHFA, regulator of the government backed giants Fannie Mae and Freddie Mac, filed a lawsuit against Barclays and 17 other institutes for selling faulty mortgages to the companies that bogged them down in deep debts during the housing market crash.
The lawsuit specifically accused Barclays of misleading the two firms into buying faulty mortgages worth $4.9 billion. As a part of the settlement, Barclays will pay $227 million to Freddie Mac and $53 million to Fannie Mae. The payment will be made before May 7, according to the settlement agreement.
"We are pleased to have resolved this matter regarding legacy RMBS-related activities that pre-date the financial crisis of 2008. The settlement will not impact our 2014 earnings," Barclays said in a statement.
This is the 13th settlement for FHFA since it launched the investigation and sued the institutions. More recently, Bank of America and Merrill Lynch and Countrywide Financial Corp., jointly paid approximated $9.5 billion to settle the lawsuit with FHFA. Until now, the agency has settled with Citi Group, General Electric, J.P. Morgan Chase and UBS among others.
It still has to settle suits with HSBC North America Holdings, Inc., The Royal Bank of Scotland Group, PLC, Goldman Sachs & Co. and two other institutions.
"This is the 13th settlement related to the 18 PLS lawsuits FHFA filed in 2011. FHFA remains committed to satisfactory resolution of the remaining actions," the FHFA stated.
Fannie Mae and Freddie Mac were bailed out by the government when the housing market crashed in 2007. The companies received aid of around $170 billion. Due to the housing recovery, Fannie Mae and Freddie Mac have become profitable now. As of December 2013, Freddie had already paid $71.3 billion, while Fannie returned $121.1 billion. Plans to wind down the two lending bigwigs are still under government scrutiny. More recently, the Senate revealed a proposal outlining the terms of the closure.
Meanwhile, Barclays is now facing heat from shareholders for its faulty pay policies. The bank's employee pay reports showed that bonuses increased by 10 percent despite a 32 percent drop in profits. However, Barclays officials defended the move saying the bonus came after a long two-year dry spell, according to The Wall Street Journal.
