The Federal Housing Finance Agency is bringing suit against the United State’s 18 largest banks. This suit stems from the banks sale of $200 billion in toxic mortgage-backed securities to Fannie Mae and Freddie Mac. The FHFA claims that the banks overstated the value of the mortgaged homes and the number of the homes that were owner-occupied. Defendants in this case include notable financial giants such as: Bank of America, J.P. Morgan Chase, and Goldman Sachs.
The media has been reporting that the suit is valued upwards of $200 billion; however, the FHFA contests this figure and suggests that the suit seeks only the actual loss in value of the securities, which would result in a more modest figure of $40 billion. Despite this discrepancy in value, this suit is among many other legal burdens that these banks face. Attorney generals from all 50 states have sought in total $20 billion in redress resulting from the alleged foreclosure-related abuses.
Legal experts weighing in on this case note that Fannie and Freddie’s actual losses may not be sourced from the banks misstatements but rather from a change in market conditions. One expert went on to say that if the banks successfully can argue that the losses were due not from misrepresentations but from the burst of the housing bubble, they should have a good chance at winning the case.
Roger Parloff, Uncle Sam’s new crusade against banks, https://finance.fortune.cnn.com/2011/11/08/fannie-freddie-lawsuit-banks/?iid=HP_River (accessed November 8, 2011).