U.S. Agency Set to Sue Big Banks on Mortgage Deals

The Federal Housing Finance Agency is set to file lawsuits against more than a dozen big banks for allegedly misrepresenting the quality of mortgage securities they were assembling and peddling at the height of the housing bubble.

Three unnamed officials told The New York Times that the agency plans to seek billions of dollars in the suits against Bank of America, JPMorgan Chase and Goldman Sachs, to name a few, and that they plan to file the suits in federal court in the next few days. –BF

The New York Times:

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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