Friday, September 2, 2011

Government to sue banks for bad mortgage loans during bubble

The bad news for banks just keeps coming:
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.

1 comment:

  1. And it's going to continue for a while. We just attended a conference led by Freddie Mac since we are in the reo realty business. They are predicting that 20% of loans are or will be in default in Miami Dade County by the end of 2010. And the unknown glut of forecloses remains unknown not because banks are playing nice with homeowners to try and keep them in their houses. It’s because they are now dissecting all mortgage related documents to ensure the foreclosure process is done correctly. See...investors that are now buying notes from banks are being surprised with unexpected expenses as a result of borrowers not being initially foreclosed correctly.