Federal regulators sue banks over mortgages

The Federal Housing Finance Agency recently filed suit against 17 financial institutions for violations of federal securities laws and common law in the sale of residential mortgage-backed securities. The FHFA is the conservator for Fannie Mae and Freddie Mac, who reportedly lost about $30 billion in the toxic mortgages. 

The 17 financial instutions being sued include Ally Financial, Bank of America, Barclays Bank and Goldman Sachs. According to the Wall Street Journal, the mortgage loans that were packaged into securities failed to meet underwriting guidelines outlined by the banks in their security filings. The lawsuits allege the banks lied about the stability of the investments when Fannie Mae and Freddie Mac purchased the securities.

William Black, a former bank regulator, told the news source that many consumers believe financial institutions such as Fannie Mae and Freddie Mac cannot be defrauded by banks, but fraudulent loans and inadequate disclosures make it possible.

According to the news source, the financial institutions are likely to argue that Fannie Mae and Freddie Mac knew the loans were risky due to the underlying economic conditions, and that the government-sponsored entities knew as much about the poor quality of the loan portfolios as the banks.  

More News