Monday, September 5, 2011

Federal Regulator Suit: Banksters Made False Claims Regarding Compliance w/ Sound Underwriting Guidelines When Making, Peddling Securitized Home Loans

Reuters reports:

  • A U.S. regulator sued a number of major banks on Friday over losses on more than $41 billion in subprime mortgage bonds, which may hamper a broader government mortgage settlement with banks.

  • The lawsuits by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, came as a surprise to the market and weighed on bank shares. The lawsuits could add billions of dollars to the banks' potential costs at perhaps the worst possible time for the industry.

  • The FHFA accused major banks, including Bank of America Corp, its Merrill Lynch unit, Barclays Plc, Citigroup Inc and Nomura Holdings Inc of selling bonds backed by mortgages that should have never been packaged into securities.


  • While the ultimate amount FHFA will seek is still unclear, [an unnamed mole reportedly familiar with the matter] said it could top the $20 billion being discussed by the banks and the state attorneys general.

  • "Defendants falsely represented that the underlying mortgage loans complied with certain underwriting standards and guidelines, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans. These representations were material to the GSEs, as reasonable investors, and their falsity violates (the law) and constitutes negligent misrepresentation, common law fraud, and aiding and abetting fraud," the FHFA said in the suit against Merrill Lynch.

For more, see U.S. regulator sues major banks over mortgages.

See also, The New York Times: U.S. Is Set to Sue a Dozen Big Banks Over Mortgages:

  • The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

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