17 Banks Sued by the FHA — About $200 Billion at Stake

The FHA is saying that the banks misled Fannie Mae and Freddie Mac about the soundness of the underlying mortgages. REALLY? You think? How can banks defend themselves now, 5 years after the facts, when most of the skeletons in the closets have been found? I don't think there will many hiding places.

Not only are most of the banks on this list cash strapped and on the verge of collapse — specially, BofA and SocGen, according to the market action, but now, the lawsuits could precipitate their collapse.

Do you really think that these banks will have a cumulative $200 billion to hand bank?

Bank of America (including its subsidiaries ML, CFF) is on the line for about $50 billion. How big those $5 billion invested by Warren Buffett look like now? How clever does Warren Buffett look like now?

Of course, with $200 billion at stake, those making the profits will be the law firms. And these banks will obviously everything they can to delay and prevent the ruling from impacting them negatively.

Sept. 2 (Bloomberg) -- Bank of America Corp., Citigroup Inc. and JPMorgan Chase were among the 17 lenders sued by the Federal Housing Finance Agency for allegedly misleading Fannie Mae and Freddie Mac about billions of dollars of residential mortgage-backed securities. 

In lawsuits filed today in New York state and federal courts and in federal court in Connecticut, the agency also named as defendants Barclays Plc, Nomura Holdings Ltd., HSBC Holdings Plc Societe Generale SA, Morgan Stanley, Ally Financial, Royal Bank of Scotland, Credit Suisse Group AG, Deutsche Bank AG and First Horizon National Corp. The complaints say the banks misled Fannie Mae and Freddie Mac about the soundness of the underlying mortgages. 

FHFA is seeking to have some defendants refund the investments with interest and pay other damages, including punitive damages for alleged misconduct. “FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the enterprises for those securities,” the FHFA said in a statement. 

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency. Billions in Securities The agency said in its filings that Fannie Mae and Freddie Mac bought $6 billion in mortgage-backed securities from Bank of America; $24.8 billion from Merrill Lynch, which Bank of America took over in 2008; $3.5 billion from Citigroup; $11.1 billion from Goldman Sachs and $4.9 billion from Barclays. The suits also cover $2 billion in securities from Nomura, $33 billion from JPMorgan, $883 million from First Horizon, $14.2 billion from Deutsche Bank, $14.1 billion from Credit Suisse, $1.3 billion from Societe Generale and $6.2 billion from HSBC. 

“The claims brought by the FHFA are unfounded,” said Frank Kelly, a spokesman for Frankfurt-based Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more, often after hand-picking the loans they now claim should not have been included in the offerings.” 

The FHFA sued UBS AG, Switzerland’s biggest bank, in July over $4.5 billion in residential mortgage-backed securities sold to Fannie Mae and Freddie Mac, claiming they misstated the risks of the investments. The suit seeks unspecified damages.