U.S. Government To Sue 17 Banks Over Sales Of Mortgage Securities

Written by Timothy Ruth on Sep. 04, 2011

The United States government is looking to sue at least a dozen of banks alleging fraud in housing securities. The agency that oversees Fannie Mae and Freddie Mac says that the banks have misrepresented the quality of mortgage securities sold in the housing bubble, according to three New York Times insiders.

The lawsuit for $196 billion is expected to be filed on Tuesday after the Labor Day weekend, and it will target JPMorgan Chase, Goldman Sachs, Deutsche Bank, Bank of America and at least a dozen others. The suit will also target foreign banks such as Société Générale, Barclays, and the Royal Bank of Scotland.

The lawsuit by the Federal Housing Financing Agency come from subpoenas that the Federal Housing Financing Agency issued to the banks last year.

The suit says that the dozen of financial institutions didn’t perform the due diligence required under securities law and missed evidence that borrowers’ incomes were either inflated or falsified. The financial institutions put together the mortgages and marked them as securities to investors.

After the housing bubble bursts, many borrowers were unable to pay their home loans and the securities backed by the mortgages decreased in value.

In the lawsuit, the FHFA is expected to say that the institutions targeted need to pay the following based on how much the toxic assets were worth:

  • $57.4 billion from Bank of America
  • $33 billion from JPMorgan Chase
  • $11.1 billion from Goldman Sachs
  • $10.6 billion from Morgan Stanley

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