The U.S. is suing 17 banks, including JPMorgan Chase, Bank of America, Barclays, Citigroup and Goldman Sachs, alleging that securities laws were violated in the sale of mortgage-backed securities to federal agencies such as Freddie Mac and Fannie Mae. The government is seeking a full buyback of the securities known as GSE Certificates in the amount of $196.2 billion. Observers believe that the litigation will further interfere with the administration’s plans to facilitate mortgage settlements between lenders, servicers and states that have lost millions in the securitization process. For more on this continue reading the following article from The Street.
The Federal Housing Finance Agency announced Friday afternoon that it had sued 17 large banks, alleging violations of federal securities laws in the sale of mortgage-backed securities to government-sponsored enterprises, including Fannie Mae (FNMA), Freddie Mac (FMCC).
The grand total of the securities sold to the government-sponsored enterprises, for which the Federal Housing Finance Agency is seeking full buybacks from the banks, is $196.2 billion.
The FHFA demanded full recovery of damages sustained from Fannie Mae and Freddie Mac’s purchase of over $6 billion in mortgage-backed securities known as “GSE Certificates,” that were sold by Bank of America (BAC) between Sept. 30, 2005, and Nov. 5, 2007.
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The damages were to be determined at trial, but with “recission and recovery of the consideration paid for the GSE Certificates, with interest thereon.” That means that if Bank of America were to lose the case, the company would be repaying the government-sponsored enterprises in full to repurchase the GSE certificates.
More importantly, the FHFA is seeking full rescission and recovery from $26.6 billion in mortgage-backed securities sold to the GSEs by Countrywide, before the mortgage lender was acquired by Bank of America in 2008, and $24.9 billion sold to Fannie and Freddie by Merrill Lynch and its subsidiaries, before Merrill was acquired by Bank of America in 2009.
The agency provided details on its claims against 14 other entities it sued, demanding full rescission and recovery from:
- Ally Financial, for $6 billion in securities sales to Fannie and Freddie.
- Barclays(BCS), for $4.9 billion in securities sales to the GSEs.
- Citigroup (C), for $3.5 billion in securities sales.
- Credit Suisse(CS), for $14.1 billion in securities sales.
- Deutsche Bank (DB), for $14.2 billion in securities sales.
- First Horizon National (FHN), for $883 million in securities sales.
- General Electric (GE), for $549 million in securities sales.
- Goldman Sachs (GS), for $11.1 billion in securities sales.
- HSBC (HBC), for $6.2 billion in securities sales.
- JPMorgan Chase(JPM) for $33 billion in mortgage-backed securities sales by the company, Washington Mutual (which it acquired after the giant thrift failed in September 2008), and other subsidiaries, to Fannie and Freddie.
- Morgan Stanley (MS), for $10.6 billion in securities sales.
- Nomura Holdings(NMR), for $2 billion in securities sales.
- Royal Bank of Scotland (RBS), for $30.4 billion in GSE Securities sales to Fannie Mae and Freddie Mac.
- Société Générale, for $1.3 billion in securities sales.
Such huge amounts of securities buybacks being demanded by the FHFA, throw a monkey wrench into any plan President Obama may wish to present, to facilitate a settlement of mortgage foreclosure, servicing and putback claims, between the major mortgage lenders and servicers, the 50 state attorneys general, and the federal regulators.
This article was republished with permission from The Street.