In lawsuits filed in New York and Connecticut, the federal agency targeted 17 financial institutions including Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank

by Tim Mak, Politico

The Federal Housing Finance Agency on Friday filed lawsuits seeking billions in compensation against more than a dozen big banks, accusing them of financial misrepresentation in the mortgage market, a significant cause of the American economy’s current state of economic distress.

In lawsuits filed in New York and Connecticut, the federal agency targeted 17 financial institutions including Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank

The lawsuits argue that the banks, which combined mortgage loans together and marketed them as securities to investors, did not perform the due diligence required under law, allowing some unqualified homebuyers to attain mortgages they could not afford.

The FHFA allege that “some portion of the losses that Freddie May and Freddie Mac incurred on private-label mortgage-backed securities are attributable to misrepresentations and other improper actions” by the firms named in the suit.

The FHFA also alleges that “the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials.”

Fannie Mae and Freddie Mac, which the Federal Housing Finance Agency oversees, lost more than $30 billion, in part because of these deals. The losses were mostly bourne by taxpayers.

The United States’ ongoing economic downturn is in part caused by the crash that was precipitaed by the housing mortgage crisis.

However, in a time of slow economic growth, bank officials have warned that further legal attacks will only delay the recovery in the housing market, and that lawsuits which could cost banks billions – resulting in a need for a further round of bailouts.

Meanwhile, the Federal Housing Finance Agency is in the midst of another suit, which it filed in July against UBS, another major mortgage securitizer. In that lawsuit, the agency is seeking to recovery at least $900 million.

Freddie and Fannie acquired the risky mortgage securities before the housing market collapsed when the investments looked relatively safe. Although the securities were backed by risky loans, they were rated as safe investments by rating agencies.

As of June 30, Freddie Mac and Fannie Mae hold more than $118 billion of securities backed by risky home loans, with total losses so far at around $33 billion.

Source: Politico

Related post:

Why Isn’t Wall Street In Jail?