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BREAKING NYT REPORT - U.S. Government Is Set To Sue A Dozen Big Banks Over Fraudulent Mortgages - Including BofA, JP Morgan, Goldman Sachs & Citigroup

And the hammer comes down...

  • The suits are being filed now because regulators are concerned that it will be much harder to make claims after a three-year statue of limitations expires on Wednesday, the third anniversary of the federal takeover of Fannie Mae and Freddie Mac.

On 2nd glance, this seems to be all puff and no inhale.

If it's $50 billion total, which is a high-end working guess, that's $4.2 billion per bank, which is just enough to appease the angry electorate (as though they are even paying attention to the details - which they are not, especially since Dancing With Palin is due to start up in the next few weeks) but not enough to hurt any of the 12 banks being sued.

This will not kill ANY of the banks.  Nor will it lead to any new bailouts.  Extend and pretend is alive and well.  This is barely a speedbump on the Bernank's Kick The Can Highway.


New York Times

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.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

And last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

Bank of America, Goldman Sachs and JPMorgan all declined to comment. Frank Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

But privately, financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities. In addition, they contend that investors like A.I.G. as well as Fannie and Freddie were sophisticated and knew the securities were not without risk.

Investors fear that if banks are forced to pay out billions of dollars for mortgages that later defaulted, it could sap earnings for years and contribute to further losses across the financial services industry, which has only recently regained its footing.

Bank officials also counter that further legal attacks on them will only delay the recovery in the housing market, which remains moribund, hurting the broader economy. Other experts warned that a series of adverse settlements costing the banks billions raises other risks, even if suits have legal merit.

The housing finance agency was created in 2008 and assigned to oversee the hemorrhaging government-backed mortgage companies, a process known as conservatorship.

DB Here - Apocalypse & Armageddon Warning in...3,2,1...

  • While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again,” said Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues.


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Reader Comments (18)

it's a 3 year "statute," if anyone cares to review the stuff you write:
a three-year statue of limitations

Good new otherwise.
Sep 2, 2011 at 1:13 AM | Unregistered Commentercanaman
What in the Sam Hill is going on here? Are the banks about to be pummeled by the victims of their fraud?

Please, knave. The banks are doing what any caught-red-handed defendant does: cap damages.

You see, by allowing this seemingly out-of-the-blue surprise lawsuit to go forward--and go forward fast enough for Obusma to claim victory over "fatcat" bankers--the taxpayer will be able to claim victory, to rally behind Bush III.

But what did we win? $30 BILLION is what Fannie and Freddie lost? That's it? Really?

Of course not. Problem is, said taxpayer has a final judgment in his hands and will, upon his return to court for a 2nd lawsuit, learn the true meaning of phrases like "with prejudice" and "collateral estoppel" and even "stare decisis." His second case, the real one for $2.97 trillion, will be worthless by the very terms of the written judgment he pointed to as a victory before the election of 2012 went forward.

The suddenness of the recent wave of judicial action stinks to high heavens. Don't be fooled.
Sep 2, 2011 at 1:15 AM | Unregistered CommenterCheyenne
"financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities."

Uh huh. So losses caused by the fact that legal trusts bought by pension funds hold NO NOTES WHATSOEVER, REGARDLESS IF PRICES DOUBLE EVERY YEAR, don't count?

Right. Got it. All set.

Now try a real argument.
Sep 2, 2011 at 1:40 AM | Unregistered CommenterCheyenne
Here's what I just wrote at the top of the story.

"On 2nd glance, this seems to be all puff and no inhale.

If it's $50 billion total, which is a high-end working guess, that's $4.2 billion per bank, which is just enough to appease the angry electorate (as though they are even paying attention to the details - which they are not, especially since Dancing With Palin is due to start up in the next few weeks) but not enough to hurt any of the 12 banks being sued.

This will not kill ANY of the banks. Nor will it lead to any new bailouts. Extend and pretend is alive and well. This is barely a speedbump on the Bernank's Kick The Can Highway."
Sep 2, 2011 at 1:53 AM | Registered CommenterDailyBail
Criminal activity ...seize ALL THEIR ASSETS just like they do for drug dealers ...economic crisis would be over in one foul swoop and these "players" are behind nearly every "bubble" that has burst in the last 50 years.
Sep 2, 2011 at 1:58 AM | Unregistered Commentermick
As of June 30, Freddie Mac holds more than $80 billion in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans. Freddie estimates its total gross losses stand at roughly $19 billion. Fannie Mae holds $38 billion of securities backed by Alt-A and subprime loans, with losses standing at nearly $14 billion.


That section of the NYT piece implies it's $33 billion, but is not clear about how much the total size of the lawsuits could be, so I'm going with $50 billion as a high-end guess.
Sep 2, 2011 at 1:59 AM | Registered CommenterDailyBail

Fair enough, the number, but you get the point: this is more Kabuki theater. Wall Street has lost the fin./econ battle due to fin./econ blogs like this one. And we both know there are numerous other econ/fin. blogs as well. And a fine job you have all done bringing to many many people's attention the parasitic problem we're all suffering from.

So now they'll leapfrog to their next platform, which is phony law.

Get ready. The first shot was just fired.
Sep 2, 2011 at 2:51 AM | Unregistered CommenterCheyenne
I wasn't qubbling with your number. Was just trying to pin this thing down. And yeah, you make a good point...not much to this story. A placeholder lawsuit as the liability clock strikes midnight, leaked to the NYT, with a bold headline, and little else. The ShitOnTocracy lives on. Dimon, Moynihan, Blankfein and Pandit exit stage left, arms extended, smiles broad.
Sep 2, 2011 at 3:00 AM | Registered CommenterDailyBail
This shit truly makes you wonder. A colossal stock crash--or a 2000 point rally--wouldn't surprise me Monday. The entire obtainable reality has gone wholesale ridiculous in the space of a week.

Chalk ! against the new normal.
Sep 2, 2011 at 3:11 AM | Unregistered CommenterCheyenne
You guys are truly a beacon, readers included. I was listening to this "big news" on the radio, and knew it stank to high heaven. Then I come here, and see it labelled "all puff and no inhale" - lol! This is about protecting banks, not justice.
Sep 2, 2011 at 8:59 AM | Unregistered CommenterClaire
This probably IS more political smoke and mirrors. Who cares. My hope is that it serves the purpose of motivating individuals to file their own lawsuits.

Death by a million cuts.
Sep 2, 2011 at 9:16 AM | Unregistered Commenterchunga
Why would anyone expect Obama's administration to legally pursue his benefactors, the bankers at Wall St? Of course it's a gimmick to bug down the legal process and reduce transparency, accountability and punishment in this regard. It's another Obama-con and no less.
Sep 2, 2011 at 9:22 AM | Unregistered CommenterEgoigwe
So Al is going to sue Capone? Somehow I highly doubt that. More PR manipulation to quiet the natives umtil the Fall sitcom season starts and the NFL opener kicks in.
Sep 2, 2011 at 10:50 AM | Unregistered CommenterBohemian Rove
The suit will be settled 4-5 months in advance of the 2012 election. It will win some concessions but will favor the banks and close the issue. Everyone supposedly will be happy, including Obama's campaign manger, because they present the President as fighting for "the American people, the people on Main Street." The banks will be happy and contribute to Obama's campaign. The banks will be safe o any serious state actions on this matter.

This President is a Chicago-trained election tactician. Don't expect much.
Sep 2, 2011 at 1:20 PM | Unregistered CommenterJohn Mack
@Cheyenne:"A colossal stock crash--or a 2000 point rally-". I was going to say you had a 50/50 chance of being right but I could see both happening at the same time in this PONZI MARKET.
Sep 2, 2011 at 10:30 PM | Unregistered CommenterTR
And absolutely nothing will be done.
Smoke and mirrors.
Sep 3, 2011 at 2:26 AM | Unregistered CommenterWeKnow

Agreed. But how pathetic is that? Listening to verbal cues from a wank-shammy like Ben or Timmay rather than studying fundamentals like P/E ratios and dividend trends?

If you're in the stock market right now, you're an idiot. How can you predict what insane thing an ass clown like Bill Dudley will do? Fuhgetaboutit.
Sep 3, 2011 at 9:45 PM | Unregistered CommenterCheyenne
A .338 lapua magnum has an effective kill range of 1,800 yards. Maybe we can have some target practice? It's time to cut this crap to the bone and follow in China's foot steps: public executions. I am sick of this crap and not one person has gone to jail. It's the usual "without admitting or denying guilt" crap and the statute of limitations on the horizon. Put these fuckers in jail or one day, hopeful it's soon, some pissed off tax payers are going to start taking these guys out.
Sep 6, 2011 at 1:57 PM | Unregistered CommenterSick of it all

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