US Federal agency to sue financial institutions:

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**Melissia**

http://money.cnn.com/2011/09/02/news/companies/government_mortgage/index.htm?hpt=hp_t1

NEW YORK (CNNMoney) -- The federal agency overseeing Fannie Mae and Freddie Mac filed lawsuits Friday against 17 financial institutions in an attempt to recover billions of dollars in losses from risky mortgage investments.

The lawsuits were filed against many of the nation's largest Wall Street and financial firms, including Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase. (See full list at end of story.)

In the complaints, the Federal Housing Finance Agency contends the institutions misrepresented the quality of the investments' underlying loans.

"Based on our review, FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials," the agency said in a press release.

Fannie Mae and Freddie Mac bought more than $196 billion of these residential mortgage-backed securities from the named financial institutions in the middle of the last decade, according to the suits.

These bundles of home loans were hot investments during the housing boom, helping fuel the proliferation of mortgage lending and run up in home prices. But when the market crashed and homeowners defaulted in droves, the securities plummeted in value.

Fannie Mae and Freddie Mac, which were among the biggest purchasers of these securities, also got caught in the downdraft.

Bank of America countered that Fannie and Freddie said they understood the risks inherent in investing in subprime securities. And Bank of America said that the companies continued to add to their holdings even after their regulator told them they didn't have the needed risk management.

"Despite this, the [companies] are now seeking to hold other market participants responsible for their losses," Bank of America said in a statement.

Other financial institutions could not immediately be reached for comment.

Fannie Mae and Freddie Mac, which were taken into conservatorship by the federal government during the 2008 financial crisis, are the largest sources of funding for the U.S. housing market.

They buy mortgages from lenders and either hold them on their books or bundle them into securities. The companies also have bought mortgage-backed securities issued by other institutions.

The agency, which says it is charged with protecting the mortgage finance companies' assets on behalf of taxpayers, is seeking damages and penalties. The exact extent of the damages will be determined in court, according to the lawsuits.

The legal action could be "a very big deal" because it casts doubts on the quality of the mortgage securities sold to all investors, not just Fannie Mae and Freddie Mac, said Guy D. Cecala, chief executive of Inside Mortgage Finance, an industry publication.

"FHFA is effectively questioning whether most of the mortgage securities packaged and sold during the go-go years of the mortgage market violated securities law," he said.

The complaints were filed against the following institutions: Ally Financial; Bank of America (BAC, Fortune 500); Barclays Bank (BCS); Citigroup (C, Fortune 500); Countrywide Financial; Credit Suisse Holdings (CS); Deutsche Bank (DB); First Horizon National (FHN); General Electric (GE, Fortune 500); Goldman Sachs (GS, Fortune 500); HSBC North America; JPMorgan Chase (JPM, Fortune 500); Merrill Lynch/First Franklin Financial; Morgan Stanley (MS, Fortune 500); Nomura Holding America; Royal Bank of Scotland (RBS); Societe Generale.

First Published: September 2, 2011: 5:20 PM ET

What's your opinion of this?

**Major Malfunction**

Typical government BS.

First, the government threatens to sue financial institutions if they don't lend to people that can't really afford the loans. When the banks complain, the government tells them they will back up the loans.

Now, they sue when the loans the banks didn't want to make in the first place turn out to be bad loans.

**Albatross**

This...

Fannie Mae and Freddie Mac, which were taken into conservatorship by the federal government during the 2008 financial crisis, are the largest sources of funding for the U.S. housing market.
They buy mortgages from lenders and either hold them on their books or bundle them into securities. The companies also have bought mortgage-backed securities issued by other institutions.

....seems fairly hypocritical, if you ask me. They were obviously very happy to sell on these crappy securities with the implication that the government would bail them out if their operation went tits-up. This perceived lack of risk on their part probably lead to them not doing their due diligence as far as evaluating exactly how high the quality of what they were selling (and, of course, buying) actually was. They are equally culpable, in my opinion.

Wow. That was my first 'serious' post on Dakka for a while. Feels weird.

**dogma**

The Green Git wrote:Typical government BS.

First, the government threatens to sue financial institutions if they don't lend to people that can't really afford the loans. When the banks complain, the government tells them they will back up the loans.

Now, they sue when the loans the banks didn't want to make in the first place turn out to be bad loans.

That's not what the article describes at all.

There is a difference between a misrepresented financial instrument, and a particular type of loan made to particular type of person.

**Melissia**

Indeed, this is actually about the companies misrepresenting rather than them giving bad loans.

**feeder**

This is rich law firms on both sides getting even richer.

**Chowderhead**

feeder wrote:This is rich law firms on both sides getting even richer.

First off, the US is not a Law Firm.

Second, a Lawsuit doesn't usually end in both sides winning.

**feeder**

Chowderhead wrote:
feeder wrote:This is rich law firms on both sides getting even richer.

First off, the US is not a Law Firm.

Second, a Lawsuit doesn't usually end in both sides winning.

First, true. However, the US has lawyers (rich ones) that are paid to act on its behalf during lawsuits.

Second, true. However, JP Morgan, et al, have rich lawyers who get paid despite "winning" or not.

This whole affair consists of politicians posturing and lawyers cashing in. Status Quo? MAINTAINED!

**Chowderhead**

feeder wrote:
Chowderhead wrote:
feeder wrote:This is rich law firms on both sides getting even richer.

First off, the US is not a Law Firm.

Second, a Lawsuit doesn't usually end in both sides winning.

First, true. However, the US has lawyers (rich ones) that are paid to act on its behalf during lawsuits.

Second, true. However, JP Morgan, et al, have rich lawyers who get paid despite "winning" or not.

This whole affair consists of politicians posturing and lawyers cashing in. Status Quo? MAINTAINED!

Welcome to reality. I hope you have a nice time.

**Ahtman**

Excluding appointed Lawyers, like the AG, most federal and state lawyers aren't making huge salaries. OTOH, they don't have to find cases and have benefits.