Federal Regulators Sue Big Banks Over Mortgages

By NELSON D. SCHWARTZ

NY Times

Federal regulators filed suit on Friday against more than a dozen leading banks, seeking billions in compensation for huge losses suffered by Fannie Mae and Freddie Mac on mortgage-backed securities the banks assembled during the housing boom.
Bank of America, Goldman Sachs, JPMorgan Chase, Deutsche Bank, Citigroup, Barclays and Morgan Stanley are among the defendants in the suits, brought by the Federal Housing Finance Agency, which oversees Fannie and Freddie, the giant organizations that back mortgages.
The agency’s plan to file the suits was reported on Thursday night by The New York Times.
The legal action opens a broad front in a rapidly growing attempt to force the banks to pay tens of billions of dollars for helping stoke the housing bubble. It was the collapse of the housing market that helped prompt the financial crisis in 2008, and the hangover is still being felt in the housing sector as well as the broader economy.
The litigation also marks a more intense effort by the federal government to go after the financial services industry for its alleged mortgage misdeeds. The Obama administration as well as regulators like the Federal Reserve have been criticized for going too easy on the banks, which benefited from a $700 billion bailout package shortly after the collapse of Lehman Brothers in the fall of 2008.
Much of that money has been repaid by the banks — but the rescue of Fannie and Freddie has already cost taxpayers $153 billion, and the federal government estimates the effort could cost $363 billion through 2013.
In the suit filed against Bank of America, the agency alleges that bank sold securities that “contained materially false or misleading statements and omissions.” The company and several individual bankers named as defendants “falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans,” the suit says. Fannie Mae and Freddie Mac bought $6 billion in securities from the bank between September 2005 and November 2007.
The defendants include the company, several units of the bank including Banc of America Mortgage Securities, and a dozen individuals such as the chief executive and directors of the mortgage unit. Each defendant had a role in the process, the suit says, from buying home loans from originators to bundling those loans into securities to marketing and selling those securities to the government-backed mortgage giants.