Wednesday, November 2, 2011

Government Bails Them Out, Then Sues Them. I guess they don't realize that they are the real problem.

FHFA Sues 17 Lenders

Posted by Carole VanSickle on Wednesday, September 7th 2011
The Federal Housing Finance Agency has filed suits against 17 financial institutions for selling government-controlled GSEs Fannie Mae and Freddie Mac around $200 billion in mortgage-backed securities (MBS) that later went south[1].

Word of the suit leaked early in the day last Friday, causing Bank of America, JPMorgan Chase and Goldman Sachs stocks to fall 8.3 percent, 4.6 percent and 4.5 percent, respectively. The actual complaints were not filed until close of business on Friday and the FHFA is seeking billions of dollars in damages and returns[2].

Mike Mayo, a Crédit Agricole analyst, says that the lawsuit is likely to add to the “uncertainty that dogs the industry” and accuses the FHFA of treating banks as a “big piñata [to] the effect of delaying the housing recovery.

”The suit hinges on claims that MBS sold to Fannie and Freddie did not meet due diligence responsibilities under securities law and that the financial firms in the suit “failed to identify proof that borrowers’ incomes were overstated or fake.”

The toxic mortgages quickly plummeted in value as borrowers were unable to make payments. FHFA is suing, among others, Bank of America Corp, Goldman Sachs Group Inc, JP Morgan & Chase & Co, Citigroup Inc, Deutsche Bank AG, Barclays PLC, Nomura Holdings Inc, Morgan Stanley, Ally Financial Inc, Credit Suisse Group Inc, First Horizon National Corp, General Electric Co, the HSBC North America Holdings unit of HSBC Holdings, The Royal Bank of Scotland Group PLC and Société Générale SA.

Bryan Ellis Real Estate Letter - FHFA Sues 17 Lenders


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