Citigroup has agreed to pay $395 million to Freddie Mac to settle claims of potential flaws in mortgages it sold to the firm.

The sum covers nearly 3.7 million loans sold to Freddie Mac between 2000 and 2012.

It is latest in a series of settlements by US banks with agencies Freddie Mac and Fannie Mae – bailed out by the government during the financial crisis.

The two have claimed that banks sold them toxic debts and as a result should be responsible for the losses on them.

“Today’s agreement with Freddie Mac marks another important milestone in successfully resolving Citi’s remaining legacy mortgage issues,” Jane Fraser, chief executive of CitiMortgage, said in a statement.

Tom Fitzgerald, spokesman for Freddie Mac said the agreement was an “equitable one” and “allows both companies to move forward”.

Citigroup has agreed to pay $395 million to Freddie Mac to settle claims of potential flaws in mortgages it sold to the firm

In the run-up to the financial crisis of 2007-08, the US witnessed a big boom in its housing market.

The boom saw banks grouping together home loans and selling them as investments, including to firms such as Freddie Mac and Fannie Mae.

But as the housing market collapsed and financial crisis spread many of the underlying mortgage holders were unable to repay their debts.

As a result, the investments plummeted in value, with disastrous consequences for banks all over the world.

Freddie Mac and Fannie Mae lost more than $30 billion, partly because of their investments in the subprime mortgages, and had to be bailed out by the US government.

Since then, banks have been under pressure to resolve claims on potentially faulty mortgages sold to the two firms.

Citigroup announced a deal in July to pay Fannie Mae $968 million for loans over a similar period.

In January, Bank of America agreed to pay Fannie Mae $11.6 billion to settle claims relating to residential home loans.