Big US banks face mortgage lawsuits
Baku, September 2 (AZERTAC).The largest banks operating in the U.S. have been told to expect lawsuits from a federal regulator in the next few days, accusing them of breaching commitments on the quality of mortgage securities sold to Fannie Mae and Freddie Mac, the government-sponsored mortgage guarantors, according to people familiar with the situation.
The move, from the Federal Housing Finance Agency, a regulatory agency set up to oversee Fannie and Freddie, would be a dramatic escalation of the mortgage litigation mess that is hampering banks’ attempts to recover from the financial crisis.
It would be another blow for Bank of America, the largest U.S. bank by assets, which has seen its share price battered by doubts over its reserves for mortgage-related losses, putbacks and litigation.
Bank of America could potentially face the biggest claim, according to data compiled by the news and data company Inside Mortgage Finance, whose research is regularly cited by the U.S. government.
Countrywide Financial, the mortgage firm BofA purchased in 2008 at the urging of federal officials, and BofA together likely sold Fannie and Freddie more than $189-billion in bonds from 2003 to 2008 backed by mortgages not guaranteed by the now government-controlled home loan giants, according to Inside Mortgage Finance.
In all, the mortgage giants purchased nearly $883-billion of these securities, according to Inside Mortgage Finance data. The exact extent of Fannie’s and Freddie’s losses on these bonds is unclear.
Other U.S. banks including JPMorgan Chase and large overseas groups such as Deutsche Bank are also expected to be dragged into the litigation, which was first reported by the New York Times.
The FHFA is looking to recover billions of dollars in losses incurred by Fannie and Freddie, which bought mortgage securities from banks in the run-up to the financial crisis that soured as homeowners began to miss payments and default on the loans.
UBS, the Swiss bank, was sued by the FHFA in July over similar allegations. Other large banks had received subpoenas related to the regulators’ enquires and more lawsuits had been expected.
In the UBS case, the FHFA accused the bank of having “falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated borrowers’ capacity to repay their mortgage loans.”
Fannie Mae, Freddie Mac and FHFA had signed agreements with the biggest mortgage bond issuers preserving their right to sue the firms for alleged fraud even if the respective statutes of limitations ran out, two people familiar with the matter said.
The documents, known as tolling agreements, were agreed to by the banks to enable them and FHFA to settle their disputes without the regulator being under significant time pressures.
But the September, 2008, law that made Fannie and Freddie wards of the state put time limits on their regulator to bring action for alleged past abuses. One of those was for three years from the date of the law’s enactment.
The agency launched its suit against UBS in July after settlement talks with the bank broke down, these people said, and UBS refused to allow FHFA more time to build its case. In its complaint against the Swiss lender, FHFA referenced its 2009 tolling agreement with the company.
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