NEW YORK--A judge on Wednesday approved Lehman Bro

NEW YORK--A judge on Wednesday approved Lehman Brothers Holdings Inc.'s $ 767 million settlement with Freddie Mac, freeing up hundreds of millions of dollars to return to creditors.

The approval of the settlement, by Judge Shelley C. Chapman of U.S. Bankruptcy Court in Manhattan, stems from a $1.2 billion claim over two loans the mortgage giant made to Lehman before the investment bank's 2008 collapse.

The deal is structured similarly, in some ways, to a recently approved settlement between Lehman and Fannie Mae. Freddie and Fannie will hand over loan information that will allow Lehman to pursue claims against mortgage originators for alleged misrepresentations. Lehman lawyers said those claims can be substantial.

Lehman's former bankruptcy judge, James Peck, had ordered Lehman to set aside $5 billion for the Fannie and Freddie claims when he approved a liquidation plan in late 2011. Because the settlements were for far less than what was set aside, other creditors should get more back. The settlements are different in some respects: Freddie will get a onetime cash payment of $767 million, while Fannie will collect on its claim as a Lehman creditor.

The failed investment bank on Wednesday also updated Judge Chapman on its ongoing liquidation. The unwinding estate's chief general counsel, Matthew Cantor, said Lehman has already distributed $60 billion to creditors, with more to come. A fifth distribution is set for next month, and the payouts should continue into 2015 and beyond. Mr. Cantor said Lehman still has $12.8 billion set aside in its disputed claims reserve, and as those claims are sorted out, more money will be returned. Wednesday's hearing marked the first major Lehman decision by Judge Chapman, who took over for Judge James Peck after he retired from the bench last month.

"These are big shoes to fill," Judge Chapman said Wednesday.

Judge Peck, 68, is joining the bankruptcy and insolvency practice of Morrison & Foerster LLP as co-chair in March.

Lehman collapsed into the largest bankruptcy ever in September 2008, a breaking point that accelerated the financial crisis. Those in charge of the holding company and its brokerage have sorted out tens of thousands of claims, hundreds of disagreements and the concerns of dozens of classes of creditors.

The case won't disappear from bankruptcy court quickly, though. Lehman has a new board of directors and $9.3 billion in assets, excluding money related to foreign affiliates, to manage and sell, Mr. Cantor said Wednesday. Those assets are mostly related to litigation recoveries and private equity. Mr. Cantor said most of Lehman's real-estate assets have now been sold.

Stephanie Gleason contributed to this article.

Write to Joseph Checkler at joseph.checkler@wsj.com

Corrections & Amplifications

This item was corrected at 2:43 p.m. ET to show that Lehman's remaining assets do not include foreign assets. The original incorrectly stated they did.

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