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Big Banks Sued Over Toxic Mortgages
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FHFA Sues Big Banks Over Bad
Mortgages
September 7, 2011







The Federal Housing Finance Agency (FHFA) has filed lawsuits against 17 major banks and
mortgage lenders. The lawsuit claims that the banks and lenders knowingly misrepresented the
quality of mortgages. The mortgages in question were purchased by Freddie Mac and Fannie
Mae.

Attorneys for the FHFA are suing for damages of about $105 billion. The FHFA claims that it
found evidence of violations in $190 billion in mortgage backed securities (MBS). These
violations ranged from overstated income on the part of borrowers, to misrepresenting owner
occupancy. Owner occupied homes are desirable in an investment portfolio. Whereas, a rental
property carries less value because the tenant could move out at any time and not pay the rent.

Another area of violations was the loan to value (LTV). In some cases the LTV was greater than
100%.

Last year FHFA subpoenaed several major banks for documents related to mortgage backed
securities and the mortgages that supported these MBS. What we can gather from this is that
FHFA has the ammunition to proceed with the fight. One interesting point to ponder is that
Wells Fargo was not named in the lawsuits. What this also says to housing finance experts is
that FHFA, after studying the data from Wells Fargo, did not feel that it had enough hard
evidence to warrant a lawsuit.

Some journalists feel that the lawsuits were brought at this time because the statute of
limitations was about to run out. Remember, these transactions occurred around 2007 to 2008,
just before the housing market exploded and crashed.

The banks obviously saw this litigation coming. AIG was suing Bank of America for $10 billion
over bad loans. UBS was being sued for $2 billion by Madoff trustee over fraudulent
investments. The Federal Reserve imposed $85 million in fines on Wells Fargo related to
predatory lending abuses. The 50 states in a joint effort were suing the banks over toxic
mortgages. So we can see that lawsuits were the occurring at an alarming pace.

The consortium of big banks attempted to derail most of the lawsuit by reaching a settlement
with the 50 states. This settlement would have stopped any future claims against the banks.
Fortunately for the American taxpayers this attempt failed. We have to thank the Attorney
General of New York, Eric Schneiderman. He objected to this sweetheart deal for the banks.
He was pressured to play ball and go along with the plan which would see the banks collectively
paying a fine of about $12 billion. The attorney generals were asking for $20 billion.

This new lawsuit by FHFA sinks the deal between the banks and the 50 states. Without
immunity, the banks are now in a situation of "every man for himself".
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