The US Federal Housing Finance Agency (FHFA) has announced that has filed law suits against 17 firms alleging that they violated federal and common law in the sale of residential private-label mortgage-backed securities (PLS) to Fannie Mae and Freddie Mac at the height of the market in the run up to the credit crunch.
The complaints have been filed against :
1. Ally Financial Inc. f/k/a GMAC, LLC
2. Bank of America Corporation
3. Barclays Bank PLC
4. Citigroup, Inc.
5. Countrywide Financial Corporation
6. Credit Suisse Holdings (USA), Inc.
7. Deutsche Bank AG
8. First Horizon National Corporation
9. General Electric Company
10. Goldman Sachs & Co.
11. HSBC North America Holdings, Inc.
12. JPMorgan Chase & Co.
13. Merrill Lynch & Co. / First Franklin Financial Corp.
14. Morgan Stanley
15. Nomura Holding America Inc.
16. The Royal Bank of Scotland Group PLC
17. Societe Generale
The lawsuits also name 13 US based executives who, at the time, worked in the UK mortgage divisions of the banks.
The FHFA is out to recover damages and civil penalties under the US securities Act 1933 as well as compensatory damages for negligent misrepresentation some of the complaints also allege state securities law violations or common law fraud.
The FHFA is the ‘conservator’ of the two secondary mortgage market organisations Fannie Mae (Federal National Mortgage Association-FNMA) and Freddie Mac (Federal Home Loan Mortgage Corporation -FHLMC) set up to keep the two organisations funded and functioning.
Fannie Mae and Freddie Mac bought securitised mortgages so allowing lenders to reinvest money into the housing market by lending more money.
What the FHFA is saying is that these lenders misrepresented the mortgages they were selling to them.
As a result the two organisations lost in the region of $30 billion and had to be bailed out by the US government. It says that there had been ‘… misrepresentations and other improper actions by the firms and individuals named in these filings’. The PLS, it says, were not what they said on the tin and were far more risky than advertised.
The FHFA says that it is using the authority given to it under the Housing and Economic Recovery Act 2008 and is ‘…following those legal remedies in filing these complaints and seeks to recover on losses to the Enterprises that are the legal responsibilities of others’.