Big News: Federal Government Sues Banksters Over Foreclosure Fraud
In potentially gamechanging news, the New York Times broke the story Thursday night that the Federal Housing Finance Agency, the federal overseer for mortgage lenders Fannie Mae and Freddie Mac, is filing a pretty big lawsuit against more than a dozen big banks, alleging that they "misrepresented" the quality of the mortgage-backed securities they sold during the height of the housing bubble--the same securities that were made up of predatory subprime loans rolled in with regular mortgages and sold to investors as AAA bonds.
Banks named in the suits include Goldman Sachs, JP Morgan Chase, Deustche Bank, and our old friends Bank of America.
The Times explains:
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.
This continues the building legal fallout from the mortgage crisis almost exactly three years ago. The economy, of course, still hasn't recovered from the havoc wreaked on it by the rush to churn out more mortgages, more securities, more inflated home values for the markets to gobble up.
These lawsuits could be worth billions--more details will be known when they are officially filed, either today or Tuesday. A similar suit was filed in July, the Times notes, against UBS, and it sought at least $900 million. Similar suits against the big banks, particularly the already-very-shaky Bank of America, have the industry nervous.
Combined with AIG's massive lawsuit against Bank of America, the ongoing shakeups in the settlement with the attorneys general (including the latest accusations from the Nevada AG), it seems more and more pressure is mounting to see some sort of reckoning from the finance giants that speculated with our entire economy.