Even more than a dozen banks have been sued by the US Federal Housing Finance Agency because they have been falsely representing quality of the mortgage securities sold during the housing bubble. The Federal Regulators have filed the lawsuit last week against most of the leading banks in order to compensate the huge losses suffered by Fannie Mae and Freddie Mac.
The banks which were sued
Some of the banks which are going to be sued by the US Federal Housing Finance Agency are some of the most big banks like the Bank of America, Morgan Stanley, Citigroup, Barclays, Goldman Sachs, JPMorgan Chase, Deutsche Bank and so on. The Federal Housing agency is going to argue against what the banks have failed to live up to; the diligence that was due which was required if the securities law is to be considered while trying to assemble and also sell the mortgage securities, and the missed signs through which the borrowers’ incomes were shown to be more than what it actually was or even represented falsely.
The lawsuits are in fact supposed to be filed today itself on the 6th of September, 2011 so that the agency is able to sue the banks before the deadline to file the claim expires. Rather than making the banks to buy back the mortgage loans, the Housing agency is rather trying to seek the reimbursement against the losses on the different securities that the mortgage business giants Fannie Mae and Freddie Mac have had.
On the part of the banks, Goldman Sachs, Bank of America, and JPMorgan have declined to make any comments in the situation and what step they are going to take. Similarly, spokesmen from Deutsche Bank too said that it was not interested in making any comments on a case that has yet not been filed and of which they know little.
Even the private holders of the mortgage backed securities have been trying to force the big banks into buying back the mortgage loans. But, as has been said above, the Housing agency is in no way interested in making the banks do this. However, in addition to the private holders or the investors of the securities, almost all of the 50 of the state attorney generals are said to be in the final stage of negotiating a settlement that will be of some help in addressing the abuses against those which was considered to be the largest mortgage servicers, including that of the Bank of America, and JPMorgan and also the Citigroup. The attorneys in general, and as well as the federal officials, are going to press the involved banks to repay at the least $20 billion. This money is supposed to help in the reduction of the mortgages of those homeowners who are facing foreclosure.
In addition to this, it is also seen that the American International Group had filed a $10 billion lawsuit against one of the largest banks of America, the Bank of America, accusing them and also the Countrywide Financial and the Merrill Lynch units for misrepresenting quality of the mortgages which were backed by the securities which A.I.G. had bought.
On the other hand, the private mortgage industry executives are of the view that the most of the losses have occurred due to the economic downturn and the low housing market. They also claim that the high profile investors like the A.I.G. and Fannie Mae and Freddie Mac are experienced enough to know and understand that the mortgage backed securities were not without any risks. The investors also do fear that if the big banks are forced to pay billions for the mortgages which defaulted, it could result in sapped earnings for years to come, thereby contributing to additional losses in the financial services industry.