Friday, September 2, 2011

US Will Sue Big Banks Over Housing Bubble Mortgages

The Federal Housing Finance Agency (FHFA) which oversees giant mortgage lenders Fannie Mae and Freddie Mac will file in federal court.  Bank of America, JPMorgan Chase, Goldman Sachs, Deutsche Bank and more will be accused of misrepresenting the quality of mortgage backed securities.  The US will seek billions of dollars in compensation.  From NYT:
The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.
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