Government Sues 17 Financial Firms for Mortgage-Backed Securities

Strategic Insights -

The US government on Friday sued 17 financial firms, including major US banks and large European banks, for selling Fannie Mae and Freddie Mac mortgage-backed securities that turned toxic during the housing market collapse. The Federal Housing Finance Agency (FHFA) is seeking to have the securities sales canceled, compensation for lost principal and interest payments, and attorney fees. The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits totals $196 billion.

Key Takeaways:

  • The government is suing 17 financial firms, including Bank of America, Citigroup, JP Morgan Chase, and Goldman Sachs, for selling mortgage-backed securities that turned toxic during the housing market collapse.
  • The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits is $196 billion.
  • The government is seeking to have the securities sales canceled, compensation for lost principal and interest payments, and attorney fees.
  • Bank of America has already paid $12.7 billion this year to settle similar claims, while American International Group Inc. sued the bank for more than $10 billion for allegedly selling it faulty mortgage investments.
  • The lawsuits are a new blow to the banks, which have seen their stock prices fall due to unrelated worries about the US and European economies.
  • The mortgage-backed securities at the center of the lawsuits were sold based on documents that contained "misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, the creditworthiness of the borrowers, and the practices used to originate such loans."

Statistics:

  • $196 billion: The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits.
  • 17: The number of financial firms sued by the government for selling mortgage-backed securities.
  • $57.5 billion: The total value of mortgage-backed securities that Bank of America and Countrywide Financial Corp. allegedly sold to Fannie and Freddie.
  • $33 billion: The total value of mortgage-backed securities that JPMorgan Chase allegedly sold to Fannie and Freddie.
  • 8.3%: The percentage by which Bank of America's stock price fell on Friday.
  • 4.6%: The percentage by which JP Morgan Chase's stock price fell on Friday.

Sources:

  • Associated Press, [AP, "Government Sues 17 Firms for Mortgage-Backed Securities Sold to Fannie, Freddie,"]
  • The Federal Housing Finance Agency (FHFA), [FHFA, "FHFA Announces Litigation Against 17 Lenders for Mortgage-Backed Securities Sold to Fannie Mae and Freddie Mac"]
  • Ken Thomas, a Miami-based banking consultant and economist, as quoted in the Associated Press article.