The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.
The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.
The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.
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.
Join the official YWN WhatsApp status
3 Responses
The headlines are misleading. While it is a federal agency doing the suing, it isn’t the “United States” (meaning the government, meaning the Attorney-General suing on behalf of the American people). It’s the agency that is in charge of salvaging something for Fannie Mae and Freddie Mac who is suing on their behalf (the proceeds don’t go to the Treasury, at most they can be used to repay the bailouts for Fannie and Freddie).
A possible defense might be raised that Fannie and Freddie were anxious to acquire subprime mortgages as part of a program to make housing available to those who couldn’t afford it (though I doubt the Congress had “liar” loans and “Ninja” mortgages in mind when they started the program). If Freddie and Fannie were part of the problem, that might reduce the claims against the banks.
I am no fan of the banks, but suing them for the reason everyone at all the banks were “misrepresenting the quality of mortgage securities” brings up a few concerns. How come the government allowed it at one point and allegedly failed to catch this alleged crime? For me, this is another, in a long line of proofs, that the obama administration does not know what it is doing other than to acquire money from anyplace it can find it, to spend it on anything other than what the electorate expects it to be spent on. I guess helping the arab world try to be civilized is getting expensive.
#2- If Fannie and Freddie were still in business (technically they exist but a government agency took control when they became insolvent, as usually happens in the private sector) they would do the suing, however the Conservator is in place of the Board of Directors. That’s why is mistaken to say “the government is suing” since the person is suing on behalf of the corporations for breach of the laws governing private transactions between private companies.
There are no crimes involved since those would be prosecuted by the United States as criminal (“in the name of the people”), and in any event being stupid and delusional isn’t a crime. And this has nothing to do with the Obama administration – it’s just a legally required clean up from the last months of the Bush administration.