U.S. regulator FINALLY sues major banks over Clinton mortgages
Is Your City A Slum?
idUSTRE7815VI20110902?feedType=RSS&feedName=topNews&rpc=71
(Reuters) - A U.S. regulator sued a number of major banks on
Friday over losses on more than $41 billion in subprime mortgage
bonds, which may hamper a broader government mortgage settlement
with banks.
The lawsuits by the Federal Housing Finance Agency, which
oversees Fannie Mae and Freddie Mac, came as a surprise to the
market and weighed on bank shares. The lawsuits could add
billions of dollars to the banks' potential costs at perhaps the
worst possible time for the industry.
The FHFA accused major banks, including Bank of America Corp,
its Merrill Lynch unit, Barclays Plc, Citigroup Inc and Nomura
Holdings Inc of selling bonds backed by mortgages that should
have never been packaged into securities.
The biggest banks are already negotiating with the attorneys
general of all 50 states to address mortgage abuses. They are
looking for a comprehensive settlement that will protect them
from future litigation and limit their potential mortgage
litigation losses.
"This new litigation could disrupt the AG settlement," said
Anthony Sanders, finance professor at George Mason University
and a former mortgage bond strategist.
Banks may be more reluctant to agree to a settlement if they
know litigation from other government players could still wallop
their capital, he said.
Before the FHFA lawsuits had even hit a court docket, financial
experts offered blunt expectations for the outcome.
"The lawsuits will be settled. The end result will be a further
outflow of cash from the banks, and more importantly an
additional black eye," said Sean Egan, managing director of Egan-
Jones Ratings Co.
FHFA director Edward DeMarco is looking to minimize future
losses for Fannie Mae and Freddie Mac, which are owned by the
government after failing in 2008. The firms are pillars of U.S.
mortgage finance.
The KBW Bank Index closed down 4.5 percent, nearly doubling the
losses of the broader market. Bank of America led the index
lower, dropping 8.3 percent.
Bank shares also came under pressure from signs that the Federal
Reserve could start selling shorter-term debt on its books and
buying long-dated bonds to push longer-term yields lower as a
stimulus measure.
Such a move, known as "operation twist," would hurt banks whose
profit margin is tied to the short-term rates at which they fund
and the longer-term rates at which they invest.
CAPITAL WEAKNESS
Major banks already face potential payouts of tens of billions
of dollars to settle regulatory charges of abusive mortgage
lending and foreclosure practices, and other investor lawsuits
over mortgage debt losses.
Such payouts would reduce earnings and weaken capital levels,
perhaps harming the ability of banks to lend money and provide
much-needed life to a stalled housing market and weakened
economy.
Representatives of the sued banks declined to comment or were
not immediately available to comment.
Banks have been walloped by mortgage losses, but so have Fannie
Mae and Freddie Mac, which failed after trying to finance too
many bad mortgages with too little equity. The two entities
guarantee bonds backed by mortgages.
The question of whether to take action for problems related to
the mortgage bonds has been under discussion since Fannie Mae
and Freddie Mac were placed in conservatorship in 2008, a person
familiar with the matter said.
While the ultimate amount FHFA will seek is still unclear, that
person said it could top the $20 billion being discussed by the
banks and the state attorneys general.
"Defendants falsely represented that the underlying mortgage
loans complied with certain underwriting standards and
guidelines, including representations that significantly
overstated the ability of the borrowers to repay their mortgage
loans. These representations were material to the GSEs, as
reasonable investors, and their falsity violates (the law) and
constitutes negligent misrepresentation, common law fraud, and
aiding and abetting fraud," the FHFA said in the suit against
Merrill Lynch.
A BLIZZARD
The blizzard of litigation against banks is hurting share prices
in the sector because investors feel unable to estimate the
ultimate scope of a given bank's legal liabilities.
Bank of America, for example, had intended its proposed $8.5
billion settlement in June with investors in Countrywide
mortgage securities to resolve most litigation tied to its
disastrous 2008 takeover of that home loan provider.
But many parties are objecting to that settlement, and the deal
didn't stop the insurer American International Group Inc from
suing Bank of America for $10 billion over its own alleged
mortgage securities losses.
Nor did it stop Nevada's attorney general from threatening to
withdraw from an $8.4 billion nationwide settlement with the
bank. The AG now wants to sue the bank, accusing it of reneging
on promises to modify mortgages.
Other banks also face mortgage lawsuits. In May, for example,
the U.S. Justice Department sued Deutsche Bank, accusing it of
misleading a U.S. housing agency into believing loans it made
qualified for federal insurance.
The FHFA's lawsuits follow an initial lawsuit in July against
UBS AG seeking to recover $900 million of losses incurred on
$4.5 billion of debt.
One legislator praised the expected FHFA lawsuits. Brad Miller,
a Democratic congressman from North Carolina, said, "Not
pursuing those claims would be an indirect subsidy for an
industry that has gotten too many subsidies already."
FHFA and various investors have alleged that banks, while
packaging residential home loans into securities sold to
investors, failed to conduct adequate due diligence, and hid or
misstated the quality of the underlying loans and underwriting
as well as borrowers' ability to make payments.
As more borrowers fell behind or went into foreclosure, the
value of securities backed by their loans fell, causing losses
for investors.
Losses stemming from the precipitous deterioration in subprime
and other mortgages pushed the government to take over Fannie
Mae and Freddie Mac on September 7, 2008. Since then, taxpayers
have spent more than $140 billion to keep the firms afloat.
RichA
wrote:
> http://www.reuters.com/article/2011/09/02/us-usa-fhfa-suit-
> idUSTRE7815VI20110902?feedType=RSS&feedName=topNews&rpc=71
> Losses stemming from the precipitous deterioration in subprime
> and other mortgages pushed the government to take over Fannie
> Mae and Freddie Mac on September 7, 2008. Since then, taxpayers
> have spent more than $140 billion to keep the firms afloat.
Clinton and Greenspan should be in jail for economic treason.
Too_Many_Tools
And Bush and Cheney?
TMT
trotsky
Hi Rich, would this be best described as "socialist humor"?
LOL!
trotsky
...are still assholes.
robbielynn
I understand they started the looser requirements for purchasing a
home.
Too_Many_Tools
And Bush and Cheney?
TMT
Kris Baker
"Too_Many_Tools" <too_man...@yahoo.com> wrote in message
news:0f1c3861-d8df-4342...@h9g2000vbr.googlegroups.com...
And Bush and Cheney?
TMT
-----------------
Alan Greenspan is a "free market capitalist" who was behind the
deregulation of the banking industry ... appointed by Ronald Reagan.
If you want to know why the US economy has gone into the toilet
in the past few years, look at Reagan's seeds.
Kris
Too_Many_Tools
> "Too_Many_Tools" <too_many_to...@yahoo.com> wrote in message
>
> - Show quoted text -
And Bush and Cheney...the Devil's spawn.
TMT