Fannie And Freddie To Sue Banks Over Mortgage Securites: Does Geithner Know?


The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation. The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter. [. . .] 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. Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

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  • Display: Sort:
    Failed to perform due diligence??? (5.00 / 5) (#1)
    by Dadler on Fri Sep 02, 2011 at 08:34:14 AM EST
    Good lord, these banks knew full well this was junk, peddled it as gold, then bet against it.  They were enthusiastically diligent about ripping off others, because that was the plan.

    The truth (none / 0) (#2)
    by Militarytracy on Fri Sep 02, 2011 at 09:55:54 AM EST
    Geithner knows. (none / 0) (#3)
    by mentaldebris on Fri Sep 02, 2011 at 12:19:52 PM EST
    According to David Dayen, Geithner has been trying to get rid of DeMarco for some time. Geithner doesn't like pesky do-gooders. Even holdovers from the Bush administration.  


    But, as Dayen points out, DeMarco also has his bad points. Still, it's odd to find someone successfully doing their job and doggedly taking on the financial big boys (with friends in very high places) despite the odds against them. That the person is a holdover from the Bush administration? Wow.

    Link to story.

    Taxpayers made Freddie buy the junk... (none / 0) (#4)
    by diogenes on Fri Sep 02, 2011 at 08:23:14 PM EST
    So Fannie and Freddie weren't a wee bit complicit in this?  From Wikipedia

    "In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers. Thus began the involvement of the Fannie Mae and Freddie Mac with the subprime market.[117] In 1996, HUD set a goal for Fannie Mae and Freddie Mac that at least 42% of the mortgages they purchase be issued to borrowers whose household income was below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.[118] From 2002 to 2006, as the U.S. subprime market grew 292% over previous years, Fannie Mae and Freddie Mac combined purchases of subprime securities rose from $38 billion to around $175 billion per year before dropping to $90 billion per year, which included $350 billion of Alt-A securities. Fannie Mae had stopped buying Alt-A products in the early 1990s because of the high risk of default. By 2008, the Fannie Mae and Freddie Mac owned, either directly or through mortgage pools they sponsored, $5.1 trillion in residential mortgages, about half the total U.S. mortgage market.[119] The GSE have always been highly leveraged, their net worth as of 30 June 2008 being a mere US$114 billion.[120] When concerns arose in September 2008 regarding the ability of the GSE to make good on their guarantees, the Federal government was forced to place the companies into a conservatorship, effectively nationalizing them at the taxpayers' expense.[121][122]
    The Financial Crisis Inquiry Commission reported in 2011 that Fannie & Freddie "contributed to the crisis, but were not a primary cause." GSE mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis. The GSEs participated in the expansion of subprime and other risky mortgages, but they followed rather than led Wall Street and other lenders into subprime lending.[92]"

    Jessee sues Frank (none / 0) (#5)
    by jimakaPPJ on Sat Sep 03, 2011 at 09:12:58 AM EST
    Guess who was President (none / 0) (#6)
    by jimakaPPJ on Sat Sep 03, 2011 at 09:33:09 AM EST
    By STEVEN A. HOLMES (New York Times)

    Published: September 30, 1999

    In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.


    ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

    NY Times


    AEI's Peter Wallison - heh (5.00 / 1) (#7)
    by Yman on Sat Sep 03, 2011 at 09:44:59 AM EST
    Really? (none / 0) (#8)
    by jimakaPPJ on Sat Sep 03, 2011 at 12:36:23 PM EST
    I guess the housing bubble bursting never happened.

    The things I learn from my shadow.


    Maybe if you read the link (5.00 / 1) (#9)
    by Yman on Sat Sep 03, 2011 at 07:15:12 PM EST
    ... you wouldn't find yourself so easily (and often) confused.

    Of course the housing bubble burst - just not for the reasons you (and Faux News) claim.  But those straw arguments are easier to knock down, ...

    ... aren't they?