Federal Housing Finance Agency to Sue 12 Banks for Misrepresentation of Mortgage Securities

Strategic Insights -

The Federal Housing Finance Agency (FHFA) plans to sue 12 major banks, including Bank of America, J.P. Morgan Chase, Goldman Sachs, and Deutsche Bank, for allegedly misrepresenting the quality of mortgage securities sold in the lead-up to the financial crisis. The lawsuits aim to secure reimbursement for losses on securities held by Fannie and Freddie, with the agency seeking billions in compensation. The FHFA will argue that the banks failed to meet their due-diligence duties under securities law and failed to spot evidence of overstated or falsified borrower incomes.

Key Takeaways:

  • The Federal Housing Finance Agency plans to sue 12 major banks, including Bank of America, J.P. Morgan Chase, Goldman Sachs, and Deutsche Bank, for allegedly misrepresenting the quality of mortgage securities.
  • The agency will seek billions in compensation for losses on securities held by Fannie and Freddie.
  • The lawsuits will argue that the banks failed to meet their due-diligence duties under securities law and failed to spot evidence of overstated or falsified borrower incomes.
  • The banks involved in the lawsuits are Bank of America, down 7.33% to $7.33 a share, J.P. Morgan Chase, down 3.36% to $35.08, Goldman Sachs, down 4.47% to $107.15, and Deutsche Bank, down 3.86% to $37.11.
  • The lawsuits aim to secure reimbursement for losses on securities held by Fannie and Freddie, with the agency seeking billions in compensation.
  • Private investors have attempted to force banks to buy back mortgage-backed bonds.
  • The agency will argue that the banks failed to meet their due-diligence duties under securities law and failed to spot evidence of overstated or falsified borrower incomes.
  • The securities backed by the mortgages lost value when many borrowers proved unable to meet payments.
  • The FHFA will seek reimbursement for losses on securities held by Fannie and Freddie.

Statistics:

  • Bank of America stock price: $7.33, down 7.33% on the day.
  • J.P. Morgan Chase stock price: $35.08, down 3.36% on the day.
  • Goldman Sachs stock price: $107.15, down 4.47% on the day.
  • Deutsche Bank stock price: $37.11, down 3.86% on the day.

Sources:

  • The New York Times
  • MidnightTrader.com
  • Comtex SmarTrend Alert (August 25, 2011)
  • Comtex SmarTrend Alert (August 3, 2011)