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U.S. Is Set to Sue a Dozen Big Banks Over Mortgages

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  • U.S. Is Set to Sue a Dozen Big Banks Over Mortgages

    September 1, 2011

    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.

    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.

    The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

    Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

    And last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

    Bank of America, Goldman Sachs and JPMorgan all declined to comment. 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.”

    But privately, financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities. In addition, they contend that investors like A.I.G. as well as Fannie and Freddie were sophisticated and knew the securities were not without risk.

    Investors fear that if banks are forced to pay out billions of dollars for mortgages that later defaulted, it could sap earnings for years and contribute to further losses across the financial services industry, which has only recently regained its footing.

    Bank officials also counter that further legal attacks on them will only delay the recovery in the housing market, which remains moribund, hurting the broader economy. Other experts warned that a series of adverse settlements costing the banks billions raises other risks, even if suits have legal merit.

    The housing finance agency was created in 2008 and assigned to oversee the hemorrhaging government-backed mortgage companies, a process known as conservatorship.

    “While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again,” said Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues.

    The suits are being filed now because regulators are concerned that it will be much harder to make claims after a three-year statue of limitations expires on Wednesday, the third anniversary of the federal takeover of Fannie Mae and Freddie Mac.

    While the banks put together tens of billions of dollars in mortgage securities backed by risky loans, the Federal Housing Finance Agency is not seeking the total amount in compensation because some of the mortgages are still good and the investments still carry some value. In the UBS suit, the agency said it owned $4.5 billion worth of mortgages, with losses totaling $900 million. Negotiations between the agency and UBS have yielded little progress.

    The two mortgage giants acquired the securities in the years before the housing market collapsed as they expanded rapidly and looked for new investments that were seemingly safe. At issue in this case are so-called private-label securities that were backed by subprime and other risky loans but were rated as safe AAA investments by the ratings agencies.

    In the years before 2007, “the market was so frothy then it was hard to find good quality loans to securitize and hold in your portfolio,” said David Felt, a lawyer who served as deputy general counsel of the finance agency until January 2010. “Fannie and Freddie thought they were taking AAA tranches, and like so many investors, they were surprised when they didn’t turn out to be such quality investments."

    Fannie and Freddie had other reasons to buy the securities, Mr. Rood added. For starters, they carried higher yields at a time when the two mortgage giants could buy them using money borrowed at rock-bottom rates, thanks to the implicit federal guarantee they enjoyed.

    In addition, by law Fannie and Freddie were required to back loans to low-to-moderate income and minority borrowers, and the private-label securities were counted toward those goals.

    “Competitive pressures and onerous housing goals compelled them to operate more like hedge funds than government-sponsored guarantors, ” Mr. Rood said.

    In fact, Freddie was warned by regulators in 2006 that its purchases of subprime securities had outpaced its risk management abilities, but the company continued to load up on debt that ultimately soured.

    As of June 30, Freddie Mac holds more than $80 billion in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans. Freddie estimates its total gross losses stand at roughly $19 billion. Fannie Mae holds $38 billion of securities backed by Alt-A and subprime loans, with losses standing at nearly $14 billion.

    http://www.nytimes.com/2011/09/02/bu...gewanted=print
    "To go bravely forward is to invite a miracle."

    "Worry is the darkroom where negatives are formed."

  • #2
    What I keep wondering is this---if you've been through foreclosure and the
    process seemed on the up and up---will all foreclosures in whatever states
    still be investigated as to their legitimacy---and is there any way to find out?

    Comment


    • #3
      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.
      well, i for one will not be holding my breath!! the banks get away with anything! ANYTHING.
      8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

      Comment


      • #4
        Te States have already been doing this and getting settlements. Florida is one of the more aggressive States and has been pursuing foreclosure firms as well.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


        • #5
          Originally posted by justbroke View Post
          Te States have already been doing this and getting settlements. Florida is one of the more aggressive States and has been pursuing foreclosure firms as well.
          well, i really truly hope so. i hope there will be some justice some where please!
          8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

          Comment


          • #6
            Tobee I think I'm not as optimistic as you...these are the big guys fighting out for the big bucks - real people don't matter - we just need to work (if we can find it) and shut up...or else.

            Comment


            • #7
              I too believe it's all "political" and just a big show for We The People.
              Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
              Status: (Auto) Discharged and Closed! 5/10
              Visit My BKForum Blog: justbroke's Blog


              I am not an attorney. Any advice provided is not legal advice.

              Comment


              • #8
                Yep, and it's one set of the big boys and girls trying to get OUR money back for themselves from the other set of big boys and girls.

                Originally posted by justbroke View Post
                I too believe it's all "political" and just a big show for We The People.

                Comment


                • #9
                  Originally posted by justbroke View Post
                  I too believe it's all "political" and just a big show for We The People.

                  That's ALL it is!! Only a child or an adult moron doesn't see this.

                  The govt deregulated the financial system (mostly under Clinton), the govt forced the banks, Fannie & Freddie to lower lending standards and once the banks lost money the govt bailed them out.

                  Now they are suing the banks for all of this. What will happen if the banks actually have to pay the US Govt fines?

                  Then the govt will have to bail them out again I guess.

                  This is just a show for Obama's supporters so he can kick off the 2012 presidential comedy hour. McCain would be doing the same thing and so would anyone else.
                  The essence of freedom is the proper limitation of Government

                  Comment


                  • #10
                    Quite right! It was the Rep Congress under Clinton - the deregulatory "kool-aid" was bi-partisan. Also, don't forget the collapse of the savings and loans under Reagan.

                    Originally posted by banca rotta View Post
                    That's ALL it is!! Only a child or an adult moron doesn't see this.

                    The govt deregulated the financial system (mostly under Clinton), the govt forced the banks, Fannie & Freddie to lower lending standards and once the banks lost money the govt bailed them out.

                    Now they are suing the banks for all of this. What will happen if the banks actually have to pay the US Govt fines?

                    Then the govt will have to bail them out again I guess.

                    This is just a show for Obama's supporters so he can kick off the 2012 presidential comedy hour. McCain would be doing the same thing and so would anyone else.

                    Comment


                    • #11
                      Originally posted by IamOld View Post
                      Quite right! It was the Rep Congress under Clinton - the deregulatory "kool-aid" was bi-partisan. Also, don't forget the collapse of the savings and loans under Reagan.

                      Yeah it was a bipartisan bank robbery. G.W. Bush's brother was involved with a failed S&L and so were Bill, Hillary and John McCain with the "Keating 5" if you remember that one.

                      The more recent problems are a result of repealing the Glass-Steagall act proposed by republican senator Gramm supported by Alan Greenspan (republican) as well as the Dem's Robert Rubin, Tim Geithner, Larry Sommers and signed by President BJ Clinton.

                      Obama offered the sheep "change you can believe in" at the same time he appointed Rubin, Geithner, & Sommers to fix the economy & Clinton as secy of state. Good job they did once again.
                      The essence of freedom is the proper limitation of Government

                      Comment


                      • #12
                        Banca rotta I most certainly do remember - and as usual the "mainstream" media is asleep. I know you may not agree with all my views, but the progressive of left wing media does constantly talk about all of the above, including the Goldman Sachs "cadre."

                        Comment


                        • #13
                          Originally posted by IamOld View Post
                          Banca rotta I most certainly do remember - and as usual the "mainstream" media is asleep. I know you may not agree with all my views, but the progressive of left wing media does constantly talk about all of the above, including the Goldman Sachs "cadre."

                          Speaking of Goldman Sucks they released a memo to their biggest, richest clients a few weeks ago (not intended for public eyes) that between the US & European debt and unemployment crisis there is a coming collapse and they advised their biggest clients to bet against it by buying put options and shorting various stocks and bonds.

                          At the same time they are telling us all things are ok.

                          Anyone with a 401k or other risky investments may want to do some research and take it seriously.

                          Please be aware I am not advising anyone to buy or sell anything. I'm just saying G.S. has a reputation of selling their smallest clients junk and then betting against it, hence their CEO recently retained an attorney that also represented the Enron thugs.
                          The essence of freedom is the proper limitation of Government

                          Comment

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