The Federal Housing Finance Agency sues 17 big banks alleging that the mortgage-backed securities they sold violated securities laws.
The Federal Housing Finance Agency (FHFA) has filed a lawsuit in New York federal court against 17 of the nation’s biggest banks. The FHFA is looking to recoup $196 billion spent on mortgage backed securities sold to Fannie Mae and Freddie Mac.
In 2008 Fannie Mae and Freddie Mac began operating under U.S. conservatorship. The FHFA is charged with preserving and conserving these companies’ assets. Since then the federal regulator has been acting on Fannie and Freddie’s behalf and has demanded a refund from the banks. The FHFA is claiming that the banks misrepresented the quality of the loans the banks sold to Fannie Mae and Freddie Mac.
The FHFA claims that the financial institutions that were named in the lawsuit sold nearly $200 billion in risky home loans to the mortgage companies without adequately disclosing their risks. In their filing it states that Fannie Mae and Freddie Mac bought $6 billion in securities from Bank of America; $24.8 billion from Merrill Lynch & Co., which Bank of America bought; and $3.5 billion from Citigroup.
In July the FHFA sued UBS AG, Switzerland’s biggest bank, over $4.5 billion in residential private-label mortgage-based securities claiming that the bank violated federal securities laws and misstated the risk. The Swiss bank says it will fight tooth and nail.
“The claims brought by the FHFA are unfounded,” said Frank Kelly, a spokesman for Frankfurt-based Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor.”
Fannie Mae and Freddie Mac “acknowledged that their losses in the mortgaged-backed securities market were due to the unprecedented downturn in housing prices and other economic factors,” said Larry DiRita, a spokesman for Charlotte, North Carolina-based Bank of America.
At first glance this may seem to be the right thing to do, sue the banks and hold them accountable, but this does not fix the other problems. Suing them does not help the taxpayers who paid the price or put people back to work. The only work created in this mess is for the lawyers…
The way mortgages were sold in the years that lead to the crash changed. Traditionally banks would lend money to people so they can buy a home and those banks would hold on to the loan. Banks started to act as a middleman between consumers and investors by selling these loans to investors instead.
When the housing bubble bursted those loans went bad and investors took a huge loss. The $30 billion in losses were paid by consumers and taxpayers.
The 17 banks the complaint has been filed against:
1. Ally Financial Inc. f/k/a GMAC, LLC
2. Bank of America Corporation
3. Barclays Bank PLC
4. Citigroup, Inc.
5. Countrywide Financial Corporation
6. Credit Suisse Holdings (USA), Inc.
7. Deutsche Bank AG
8. First Horizon National Corporation
9. General Electric Company
10. Goldman Sachs & Co.
11. HSBC North America Holdings, Inc.
12. JPMorgan Chase & Co.
13. Merrill Lynch & Co. / First Franklin Financial Corp.
14. Morgan Stanley
15. Nomura Holding America Inc.
16. The Royal Bank of Scotland Group PLC
17. Société Générale
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