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JPMorgan, BofA Among 17 Banks Sued by FHFA Over $196 Billion in Securities

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DejaVu
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« on: September 02, 2011, 10:16:26 pm »

JPMorgan, BofA Among 17 Banks Sued by FHFA Over $196 Billion in Securities

Sep 2, 2011 8:28 PM

JPMorgan Chase & Co. (JPM) and Bank of America Corp. were among 17 banks sued by the U.S. to recoup $196 billion spent on mortgage-backed securities sold to Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency, on behalf of Fannie Mae and Freddie Mac, filed 17 lawsuits today in New York state and federal courts and in federal court in Connecticut. The FHFA accuses the banks of misleading Fannie Mae and Freddie Mac about the soundness of the mortgages underlying the securities.

“The loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the enterprises for those securities,” the FHFA said in a statement.

FHFA is seeking to rescind the transactions plus other damages, including civil penalties and punitive damages in cases alleging misconduct.

In addition to JPMorgan and Bank of America, the agency filed complaints in federal court in Manhattan today against Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Merrill Lynch & Co., Barclays Plc (BARC), Nomura Holdings Ltd., HSBC Holdings Plc (HSBA), Societe Generale SA, Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK) and First Horizon National Corp. (FHN)

The FHFA sued Ally Financial Inc., Countrywide Financial Corp., General Electric Co. (GE) and Morgan Stanley in state court in Manhattan, according to the agency. It sued Royal Bank of Scotland Group Plc (RBS) in federal court in Connecticut.

Fannie and Freddie

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

The FHFA said in its filings that Fannie Mae and Freddie Mac bought $6 billion in mortgage-backed securities from Bank of America; $24.8 billion from Merrill Lynch, which Bank of America took over in 2008, and $26.6 billion from Countrywide, which Bank of America acquired the same year.

The FHFA claims Fannie Mae and Freddie Mac bought $33 billion in securities from JPMorgan and $30.4 billion from Royal Bank of Scotland. According to the complaints, Fannie Mae and Freddie Mac also bought $14.2 billion from Deutsche Bank, $14.1 billion from Credit Suisse, $11.1 billion from Goldman Sachs, $10.6 billion from Morgan Stanley, $6.2 billion from HSBC, $6 billion from Ally, $4.9 billion from Barclays, $3.5 billion from Citigroup, $2 billion from Nomura, $1.3 billion from Societe Generale (GLE), $883 million from First Horizon and $549 million from GE.

UBS Suit

The FHFA sued UBS AG, Switzerland’s biggest bank, in July over $4.5 billion in residential mortgage-backed securities sold to Fannie Mae and Freddie Mac, claiming the bank misstated the risks of the investments.

“The claims brought by the FHFA are unfounded,” said Frank Kelly, a spokesman for Frankfurt-based Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor.”

Ally, based in Detroit, said in a statement that it believes FHFA’s claims are meritless and the company intends to defend its position.

Fannie Mae and Freddie Mac “acknowledged that their losses in the mortgaged-backed securities market were due to the unprecedented downturn in housing prices and other economic factors,” said Larry DiRita, a spokesman for Charlotte, North Carolina-based Bank of America.

Kim Cherry of Memphis, Tennessee-based First Horizon said the company would defend itself.

Knew the Risks

Continued: http://www.bloomberg.com/news/2011-09-03/jpmorgan-bofa-among-17-banks-sued-by-fhfa-over-196-billion-in-securities.html
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DejaVu
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« Reply #1 on: September 02, 2011, 10:33:55 pm »

How the FHFA lawsuits could imperil mortgage-settlement talks

Sept 02, 2011

So here’s an interesting wrinkle in the mortgage-settlement talks: according to Nelson Schwartz, the Federal Housing Finance Agency is going to file lawsuits against a dozen or so big banks some time before Wednesday, claiming fraud in their mortgage-securitization departments.

This smells very much like the mortgage bond scandal that I was writing about last fall; finally, that shoe might be dropping. And more importantly, it would be a major securitization-related lawsuit being filed by one arm of the federal government, just as another arm is trying to put a big settlement together which might (or might not) give the big banks immunity against precisely such suits.

According to Schwartz, the timing of the suit has nothing to do with the settlement talks, and everything to do with the statute of limitations. But once the suits have been filed, it’ll be hard to persuade the FHFA to drop them quietly — especially if it doesn’t get a large check as part of the settlement. So count this as one more thing which mitigates against any settlement from happening. The banks won’t agree to anything unless they get immunity from securitization-related suits, and the government won’t give them that immunity, not least because it’s a plaintiff in a lot of those suits itself. Expect this saga to drag on indefinitely, rather than being brought to some kind of artificial end through the settlement talks.

Source: http://blogs.reuters.com/felix-salmon/2011/09/02/how-the-fhfa-lawsuits-could-imperil-mortgage-settlement-talks/
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The most successful tyranny is not the one that uses force to assure uniformity, but the one that removes awareness of other possibilities, that makes it seem inconceivable that other ways are viable, that removes the sense that there is an outside. --Allan Bloom


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