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Citi sells Fannie Mae MSRs … to Fannie Mae

Effort marks bank's move to shed potential liability over servicing practices

Fannie Mae has purchased mortgage servicing rights on about 64,000 of its own loans from Citigroup (C), as the nation's 3rd largest lender looks to shed future liabilities tied to its servicing practices.

The unusual transaction was announced late Wednesday, with the bank saying it had reached a definitive agreement with the GSE to sell servicing rights tied to approximately $10.3 billion of unpaid principal balances on mortgages owned by the GSE.

"The sale includes the majority of the delinquent loans serviced by CitiMortgage for Fannie Mae, and it represents nearly 20% of the total loans serviced by CitiMortgage that are 60 days or more past due," the bank said in a statement. Nearly all of the loans transfered are delinquent.

The agreement means that Citi and Fannie Mae have "substantially resolved pending and future compensatory fee claims related to Citi's servicing practices on these loans," the bank said.

While the bank didn't elaborate further on the matter, compensatory fees typically refer additional fees a GSE may choose to levy on a lender/servicer should certain set standards not be met. 

Compensatory fees can be assessed for delayed remittance of claim proceeds, delays in the liquidation process, late filing of a final request for reimbursement, and other timeline-related matters.

Citi said the deal with Fannie Mae was in line with the bank's objective of reducing assets and expenses within its Citi Holdings unit, and said it would "continue to explore opportunities to further reduce Citi Holdings assets."

The loans involved in the MSR hand-off will begin being transferred to another servicer during the first quarter, although the bank cautioned that the massive servicing transfer would take as long as two quarters to complete.

"Citi will work diligently to ensure a smooth transition in the servicing of these loans for impacted customers," the bank said.

There is no official word yet on where the now Fannie Mae-owned MSRs are likely to end up.

CORRECTION: An earlier version of this story incorrectly identified compensatory fees as fees paid to foreclosure attorneys and their associated vendors in the default management process, and implied Citi may have been subject to a dispute and potential investigation over fees paid to foreclosure attorneys. No such dispute or investigation exists or has been disclosed, and the story has been updated to reflect the correct definition of compensatory fees.

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