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.
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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.
Sep 2, 2011 at 12:34 AM
Reader Comments (18)
a three-year statue of limitations
Good new otherwise.
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.
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.
"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."
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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.
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.
Chalk ! against the new normal.
Death by a million cuts.
This President is a Chicago-trained election tactician. Don't expect much.
Smoke and mirrors.
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.