A good group of the loans were originated during the U.S. housing boom. Fannie Mae and others suffered once the housing crisis took hold, as defaults on mortgages climbed.
The agreement covers claims for breaches of representations and warranties on 3.7 million loans. The deal doesn't release Citigroup's liability for servicing and other continuing contractual obligations for the loans.
Citigroup said that it is also still liable for a group of less than 12,000 loans originated between 2000 and 2012, including loans sold with a performance guarantee or under special credit enhancement programs.
The bank anticipates a $245 million residential mortgage reserve for its second quarter, consistent with reserves from recent quarters. Citigroup will report its quarterly results July 15.
The New York company said it has adequate reserves for loans not covered by the agreement.
Citigroup said Monday that it will continue to work with Fannie Mae on buying back any mortgage loans sold to the government-controlled mortgage agency that don't meet its requirements.
Citigroup's stock was up 1.5%, or 74 cents, to $48.71 in early trading Monday. (Click here for the latest stock price.)
In January, Bank of America reached an $11.6 billion settlement with Fannie Mae to settle claims resulting from mortgage-backed investments that soured during the housing crash.
—By The Associated Press.