9/15/2011
The federal agency in charge of mortgage titans Fannie Mae and Freddie Mac intends to file lawsuits against over a dozen big banks, charging them of not telling the truth about the quality of mortgage securities that they assembled and sold at the housing bubble’s peak. The lawsuit is also asking for compensation amounting to billions of dollars.
According to three individuals that have been briefed on the matter, the Federal Housing Finance Agency lawsuits, which are likely to be filed in federal court in the coming days, are targeted at JPMorgan Chase, Deutsche Bank, Bank of America and Goldman Sachs, among others.
The lawsuits stemmed from subpoenas that the finance agency issued to the banks last year. They said that if the case is not filed by Friday, it will certainly come Tuesday or shortly before the deadline for the housing agency to file the claims expires.
The suits allege that the banks, which are responsible for assembling the mortgages and marketing them as securities to different investors, were not able to perform due diligence as required under the securities laws. The suits also claim that the banks missed evidence regarding alleged falsification of the borrowers’ incomes. When a lot of borrowers failed to pay their mortgages, the mortgage-backed securities immediately lost their value.
Over $30 billion were lost by Fannie and Freddie because of the deals. These losses are mostly borne by taxpayers.
The agency also filed a lawsuit against UBS, another mortgage securitizer, and seeks to recover around $900 million. According to individuals who have knowledge of the case, the new litigation will be similar in scope.
