U.S. to Sue Banks over Mortgage Scam

by Nelson D. Schwartz
New York Times
September 2, 2011

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

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U.S. Supreme Court: Bailout Records Must Be Released

Reuters
March 21, 2011

The Supreme Court let stand a ruling that the U.S. Federal Reserve must disclose details about its emergency lending programs to banks during the financial crisis in 2008.

A group representing major commercial banks had asked the high court to reverse a ruling by a federal appeals court that required disclosure of the lending records.

The justices rejected the banks’ appeals. The Obama administration said the appeals should be denied.

It said the financial overhaul law adopted last year set new standards on releasing information about emergency lending programs and the law required the disclosure in December of much of the data at issue in the cases.

Bloomberg LP, the parent of Bloomberg News, and News Corp’s Fox News Network had sought the bailout details under the federal freedom of information law, which requires government agencies make certain documents public.

The two news organizations opposed the appeals, telling the Supreme Court the appeals court decision was correct on the merits and that further delay in releasing the remaining records would be unwarranted under the law.

The appeals court ordered the disclosure of borrowers’ names, loan amounts and loan dates for transactions at the Fed’s discount window and from its emergency lending facilities.

The Clearing House Association, representing the largest commercial banks that hold more than half of all U.S. deposits, appealed to the Supreme Court, arguing that the emergency lending data should be kept secret.

It said the appeals court ruling threatened numerous federal programs that depend on keeping commercial transactions confidential and could unjustifiably harm the reputation of banks that borrowed from the Fed’s discount window.

Clearing House members include Bank of America, Bank of New York Mellon Corp, Citigroup, JPMorgan Chase, UBS AG and Wells Fargo.

The Supreme Court declined to hear the appeals without comment.

When the Supreme Court refuses to hear an appeal, it does not represent a ruling on the merits of the dispute.