Tags: Sue | Banks | Mortgages | Federal | Housing

NY Times: US Gov’t to Sue Banks Over Shoddy Mortgages

Friday, 02 Sep 2011 08:58 AM

The Federal Housing Finance Agency, which oversees mortgage companies Fannie Mae and Freddie Mac, reportedly will sue more than a dozen big banks on grounds they misled the agency on the quality of mortgage securities they sold.

The lawsuits could seek compensation in the billions of dollars.

Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, could be slapped with lawsuits, sources told The New York Times.

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"The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value," the newspaper reports.

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"Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers."

The housing sector, meanwhile, continues to dampen economic recovery.

The Obama administration wants to allow homeowners who owe more on their houses than they're worth to refinance their government-backed mortgages while rates are low.

Critics such as Americans for Limited Government say such a plan would lead to reckless borrowing that got the country into trouble in the first place.

"The whole reason the crisis began was because cheap loans were provided to those with poor credit. Now, the Obama administration wants to return to this failed policy to prop up his sagging re-election prospects by directing the money to favored constituencies that took out loans which could not be repaid," says ALG President Bill Wilson, according to Fox News.

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