In a truly bizarre move, Federal Housing Finance Agency, the federal agency responsible for overseeing Fannie Mae and Freddie Mac, filed lawsuits yesterday against 17 financial institutions in an attempt to recover billion-dollar-losses that resulted from risky, subprime mortgage loans.
In the complaints, the FHFA says the lenders misrepresented the quality of the loans.
“Based on our review, FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials,” the agency said in a press release.
The misrepresentations cited include grossly overstating the ability of the borrowers to pay back their loans, the number of loans on owner-occupied properties, and the properties’ loan-to-value ratios.
Fannie Mae and Freddie Mac purchased over $196 billion in mortgage-backed securities from the named financial institutions over the course of the past decade.
Mortgage-backed securities were popular during the housing boom, but once the housing market crashed and homeowners began defaulting en masse, the securities dropped in value.
Fannie Mae and Freddie Mac, which were among the biggest buyers of said securities, also got swept up in the backlash.
In the most recent action, the complaints were filed against the following institutions: Ally Financial, Bank of America, Barclays Bank, Citigroup, Countrywide Financial, Credit Suisse Holdings, Deutsche Bank, First Horizon National, General Electric, Goldman Sachs, HSBC North America, JP Morgan Chase, Merrill Lynch/First Franklin Financial, Morgan Stanley, Nomura Holding America, Royal Bank of Scotland, andSociete Generale.
It’s mind-boggling that the same government that doled out millions upon million in bailout funds to these institutions is now the same government that’s turning around and suing them for making bad loans.
Maybe we should have seen this time bomb ticking back in 2005, when someone with a 500 credit score could get a mortgage loan for 100% of their purchase price with interest-only payments and a 2-year ARM.
Clearly, something was wrong with the picture back then, but no one did anything until it was already too late.
Perhaps we should be going after the loan officers who made these shaky loans so they could collect fat commission checks at the homebuyers’ expense.
- BofA, JPMorgan Among 17 Banks Sued by U.S. for $196 Billion (businessweek.com)
- Reports: U.S. will sue banks over sour mortgage securities (usatoday.com)