US To Sue Banks Over Subprime Mortgage Loans
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The US Federal Housing Finance Agency, a government body that oversees mortgage giants Fannie Mae and Freddie Mac is preparing to file a law suit against a dozen of the world’s largest banks, for allegedly misrepresenting the quality of mortgage-backed securities.
The US Federal Housing Finance Agency, a government body that oversees mortgage giants Fannie Mae and Freddie Mac is preparing to file a law suit against a dozen of the world’s largest banks, for allegedly misrepresenting the quality of mortgage-backed securities.
According to a report by the San Francisco Chronicle, 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 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 today, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.
The suits will argue that 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 they backed quickly declined.
Fannie and Freddie lost more than $30 billion in part as a result of the deals, losses that were borne mostly by taxpayers.
In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.
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.
[quote]Frank Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”[/quote]
Bank of America and JPMorgan declined to comment.
Related: US House Prices: Worse Now Than During Subprime Crash
