A federal judge approved Residential Capital LLC’s settlement with the Federal Housing Finance Agency resolving billions of dollars in claims tied to mortgage-backed securities sold to mortgage finance firms Fannie Mae FNMA -2.21% and Freddie Mac FMCC -2.03%during the financial crisis.
Judge Martin Glenn of the U.S. Bankruptcy Court in New York on Tuesday signed off on ResCap’s settlement with FHFA, the government overseer of Fannie and Freddie. The agreement is an ancillary pact tied to a settlement the housing regulator struck last month with ResCap’s parent, the government-backed auto lender Ally Financial Inc.
Under the deal, FHFA will receive a $1.2 billion claim against ResCap’s bankruptcy estate and will retain some of its mortgage-related claims against Ally.
Under ResCap’s restructuring plan, most unsecured creditors would receive around 35 cents on the dollar, though specific recoveries depend upon whether ResCap or one of its affiliates actually owes the money. FHFA will also receive $24 million in cash when the subprime mortgage lender exits bankruptcy.