JPMorgan, BofA Among 17 Banks Sued by FHFA Over $196 Billion in SecuritiesSep 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 RisksContinued:
http://www.bloomberg.com/news/2011-09-03/jpmorgan-bofa-among-17-banks-sued-by-fhfa-over-196-billion-in-securities.html