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September 2, 2011 in Business, Nation/World
Feds sue biggest U.S. banks over risky mortgages
NEW YORK — In a sweeping move, the government today sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.
Among the 17 targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., Goldman Sachs.
The lawsuits were filed Friday by the Federal Housing Finance Agency which oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.
The total price tag for the securities bought by Fannie and Freddie affected by the lawsuits: $196 billion.
The government didn’t provide a dollar amount of how much it seeks in damages. It said that it wants to have the purchases of the securities canceled, be compensated for lost principal and interest payments as well as attorney fees and costs. The lawsuits allege the financial firms broke federal and state laws with the sales.
Home mortgage-backed securities were risky investments that collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.
In the lawsuits that were filed in federal or state court in New York and the federal court in Connecticut, the government said the securities were sold with registration statements and prospectuses that “contained materially false or misleading statements and omissions.”
The Federal agency said the banks and mortgage lenders also falsely represented that the mortgage loans in the securities complied with underwriting guidelines and standards. They also included representations “that significantly overstated the ability of the borrower to repay their mortgage loans.”
The 17 institutions are Ally Financial Inc., formerly known GMAC LLC, Bank of America Corp., Barclays Bank PLC, Citigroup Inc., Countrywide Financial Corp., Credit Suisse Holdings Inc., Deutsche Bank AG, First Horizon National Corp., General Electric Co., Goldman Sachs & Co., HSBC North America Holdings Inc., JPMorgan Chase & Co., Merrill Lynch & Co. and its unit First Franklin Financial Corp., Morgan Stanley, Nomura Holding America Inc., The Royal Bank of Scotland Group PLC, and Societe Generale.
© Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
The Dirt: Kalispels to open second Fatburger 
force_vector on September 02 at 2:50 p.m.
Let the return of accountability begin. While many homeowners purchased properties they could never afford, and knew it, the banks also wrapped up those mortgages as derivative based investments which hid the true risk quotient by bundling and misrepresenting. I say, go get em’.
liberal_in_right_wing_land on September 02 at 2:52 p.m.
Finally.
Still wont be happy until I see this CEO’s marched into prison for what they did to this country.
liberal_in_right_wing_land on September 02 at 2:55 p.m.
Getting a little excited there….should say, wont be happy until THESE CEO’s are marched into prison.
AnotherVoice on September 02 at 3:08 p.m.
Oh don’t mind me, I’m still angry that the banks made billions on poor, uneducated, non creditworthy citizens and then made the rest of us pay for it. However, I have to ask all the bank haters out there: Who was it who allowed this debacle to happen? Who deregulated the mortgage industry and assumed all the risk so that the banks had free reign to make a quick profit and diversify the risk?
Oh…that’d be the federal government. Sure, I’d love to see the banks take a hit for their blatant transgressions. But the federal government suing investment banks for what they granted permission and encouraged them to do. Now that’s hypocrisy!
RedCedar on September 02 at 3:11 p.m.
Like every big problem in this country, it only got big because lots of different organizations had a hand in it. The mortgage brokers lent other people’s money to borrowers who couldn’t afford (and sometimes didn’t intend) to pay, and the Wall Street whiz kids repackaged the bad loans into “secure” bonds and other investment vehicles that got bought buy investors who thought they could trust the credit rating agencies, and if not, they could rely on the credit/default swaps they bought from outfits like AIG, which thought it was easy money to sell insurance against something bad that had never happened and probably never would happen.
However, let’s not forget that before the finance companies were lending to people who couldn’t pay, we had lots of congresscritters, and even a couple presidents talking about how important it was to allow underprivileged Americans to enjoy the pride of home ownership. Of course they were just shilling for the real estate industry with all its arms from logging and bulldozing to title insuring and mortgage brokering. Nonetheless, the upshot of it was that congress pressured its quasi-public quasi-private finance agencies to make loans to just about everyone, and to make them at low, low rates.
In China, when they have a far-reaching scandal like this (only there it might involve pollution that kills thousands of people or mines that collapse on the miners), they generally “solve” it by taking the factory manager out and shooting him, which apparently absolves all the other people involved of any responsibility. Marching the CEOs into prison over the mortgage collapse seems like a comparable approach.
liberal_in_right_wing_land on September 02 at 3:12 p.m.
AnotherVoice, different people running the federal government at the time. Most of the deregulation was allowed by Cheney and his puppet Bush.
Yet another reason those two should be locked in jail, not out giving interviews gloating about the crimes they committed while in office.
AnotherVoice on September 02 at 3:27 p.m.
Liberal in right wing land…These policies actually date back to the Clinton era. Clinton started them, Bush greatly enhanced them. This one is a bipartisan blunder all the way. If you want to get political don’t blame Bush or Clinton though, try Alan Greenspan.
End of the day, politicians knew the real value of our dollar was declining. They knew if you couldn’t make people rich, you could at least make them feel rich by giving them easy credit. Both Blue and Red made the deregulation happen. Mr. Greenspan just decided to look the other way. When it got crazy in the mid-2000’s he was the only one who could have put on the brakes by raising interest rates. But we all know what happened there.
greyhound2 on September 02 at 3:27 p.m.
It’s about time. Here is why no body is responsible.
Rating agencies forged document to sell worthless investment to gullible investors. Mortgage companies, under pressure from government to get people into homes, wrote contracts to appease their superivisors. Borrowers knowlingly lied on their applications to get a loans they could not afford and had no money in it themselves and knew they couldn’t pay.
So A screwed B, and B screwed C, and A got screwed when C screwed B. This is the capitalist system, based on greed and who dies with the most toys wins. It doesn’t last forever though, only until somebody figures it out and the bubble pops.
PLEASEGETREAL on September 02 at 3:37 p.m.
Banks take a hit we all take a hit, their costs trickle down to us so are we suing ourselves. Who has ever really liked their bank? I sure don’t, but they are a necessary evil. When I bought my house, I saw what the payment was, I saw what the terms were. Poor, Uneducated, whatever, the problem is commitment, why go any further to find the blame. Yes the banks gave people the opportunity, too much opportunity as dictated to them by the Federal Government, to obtain the American dream. 99% of chaps going to the attorneys office to close their loans knew what they were doing. The biggest issue is homeowners not doing what they are supposed to do..pay the bill!
ManleyPointer on September 02 at 4:04 p.m.
Are we going to send Dodd and Frank to prison too? Dodd would hate going to prison.
liberal_in_right_wing_land on September 02 at 4:49 p.m.
MP, as soon as Cheney and Bush are in prison for doing much worse. At least those Dodd and Frank can leave the country without fear of being arrested on war crimes by another country.
ManleyPointer on September 02 at 4:58 p.m.
Oh, I get it. Someone else allegedly did “much worse” than these two criminals, so one mustn’t call attention to their misdeeds. And they can’t be THAT bad anyway, since they can leave the country without being arrested for war crimes.
What WAS I thinking??
misjustice on September 02 at 6:14 p.m.
Remember the mortgage company here in Spokane a few years ago that offered $100 to each person they COULD’NT give a loan to? Well, all the lenders, realtors & appraisers involved in that fraud are doing time in prison. They also were fined millions.
But I blame Clinton for making the big change in lender laws & saying, “Everyone should be able to own their own home. That is “The American Dream”.
Yes, Clinton, not Bush or Cheney said it! Let’s give true credit where it’s due.
Ron_the_Cop on September 02 at 7:05 p.m.
There is plenty to blame to go around. All should watch the movie Inside Job:
http://en.wikipedia.org/wiki/Inside_Job_%28film%29
I personally would like to see Barney Frank and Chris Dodd doing time.
misjustice on September 02 at 8:01 p.m.
I own the movie “Inside Job”…it’s that important of a piece of work.
Relax folks, no one is goin’ to jail; even the Club Fed type. Despite the fact that some folks should. Let this be a lesson; if you are going to steal, kids, steal big!!! No penny ante stuff, no, steal billions!
Then you will be too big to jail!
; )
Just sayin’…
Ron_the_Cop on September 02 at 8:14 p.m.
Ms. Justy,
I think you’re unfortunately right. That’s what’s wrong with our Country right now since the ethical standards within our bus, govt and legal community seem to be at a new low.
Sometime the cold hard sound of the jail door slamming behind those who would steal other peoples’ money does have a way of bringing reality home.
DickAdams on September 02 at 8:32 p.m.
I would have thought it might have been a good idea to have looked into the banks lending practices before giving them taxpayer stimulus money. Wait a minuet, didn`t Charles Rangle and Timothy Geithner have something to do with the banking industry? If the feds would have done their job like they should have, it may have cut the number of unemployed and the industry making orange jump suits would be hiring instead of firing..
AnalyzeThat on September 05 at 5:43 p.m.
This is just the pot calling the kettle black. The whole debacle was caused by greed from the top on down and includes government, wall street, other investors,Freddie, Fannie, banks and the consumers. Economists were warning everyone in the mid-2000s that the real estate boom was a bubble and any intelligent person/investor/company should have been paying attention but obviously weren’t. Unforturnately those with the most financial resources have gotten off scott free, and the clean up of this mess won’t be over for a long time.
Freddie and Fannie suing banks is such a farce, waste of tax payer money and won’t solve anything!